/  Y 


Money  and  Bimetallism 


A  Study  of  the  Uses  and  Operations 
of  Money  and  Credit  ;  with  a  Critical 
Analysis  of  the  Theories  of  Bimet- 
allism, and  a  Study  of  Symmetallism, 
and  of  the  Tabular  Standard  of  Value 


BY 

Henry  A.  Miller 


SECOND  IMPRESSION 


OF 


G.  P.  PUTNAM'S  SONS 
NEW  YORK  AND  LONDON 

"fcnfcfcerbocfeer  press 
i899 


COPYRIGHT,  1898 

BY 
G.P.PUTNAM'S  SONS 


Ubc  ftnfcfcerbocfeer  press,  lAew  j^orft 


CONTENTS 


PART    I. 

PAGE 

OF  THE  NATURE,   USES,  AND   VALUE 

OF  MONEY        .         .         .          1-185 

CHAPTER  I. 

WHAT  Is  MONEY?    ....  1-14 

Gold  money      ......         .         .         .         .         i 

Paper  money I 

Silver  money    ..........         2 

Money  made  of  a  metal  remains  the  same  commodity  after 

coinage  that  it  was  before  coinage      .....         2 

History  of  the  introduction  of  the  use  of  money        .         .         .  3-10 
Paper  money  a  credit  and  is  a  commodity          .         .         .         .13 

Silver  money  anomalous  ........       14 

What  is  money  ?  ......       14 

CHAPTER  II. 

« 
WHAT  MONEY  Is     .        .        .          15-28 

Definition  of  money          .         .         .          .         .         .         .  1 5 

How  selected  and  adopted        .         .         .         .          .         .  15 

Facilitates  trade,    the   maintenance  of    government,    and   the 

administration  of  justice    .         .         .         .         .         .         .16 

Is  a  means        ..........       16 

Is  an  instrument  for  the  satisfaction  and  discharge  of  liabilities,  21 
Is  a  common  consideration  to  support  contracts  .  .  .21 
Is  a  measure  of  value  22 


06 


IV  CONTENTS 

CHAPTER  III. 

PAGE 

OBSERVATIONS  ON  THE  QUALITIES  ANNEXED  TO  MONEY  29-33 

Gold,  self-sustaining  and  primary  money  .....  29 

Paper  money  is  secondary  money      ......  29 

Convertible  and  inconvertible  paper  money       ....  30 

Silver  money  is  secondary  money      ......  32 

Legal-tender  quality  of  the  different  kinds  of  money         .         .  32 

Prices  and  purchasing  power    .......  33 

CHAPTER  IV. 

OF  THE  STANDARD  OF  THE  MEASURE  OF  VALUE      34-52 

What  not  meant  by  that  expression  ......  34 

What  is  meant  by  that  expression     ......  36 

Gold  is  at  present  such  standard        ......  37 

Was  adopted  as  such  by  common  consent  ....  37 

Gold  metal,  generally,  and  not  gold  coin  alone,  is  the  standard 

of  the  measure  of  value      .......  48 

Effect  of  the  appreciation  or  depreciation  of  gold  on  prices       .  50 

CHAPTER  V. 

OF  THE  QUANTITY  THEORY     .         .          53-83 

Ricardo's  explanation  of  the  theory  .         .         .         .         .         -53 

J.  S.  Mill's  endorsement  of  the  theory      .          .          .          .          .61 

The  theory  stated  and  explained       .         .          .         .         .         .61 

J.  S.  Mill's  doctrine  of  the  demand  for,  and  the  supply  of,  money,      68 
This  doctrine  unsound      ........       68 

Mr.  Mill's  qualification  of  the  doctrine     .....       70 

The  quantity  theory  not  correct         ......        70 

Effect  of  credit  on  prices  .         .         .         .         .         .         -75 

The  lesson  of  experience  .......       79 

What  the  quantity  theory  constitutes  the  standard  of  the  meas- 
ure of  value       .......          .         .       80 

Gold  and  silver  metals  were,  according  to  Ricardo,  the  stand- 
ard of  value  when  he  wrote        ......       82 


CONTENTS  v 

CHAPTER  VI. 

PAGE 

DOES  THE  USE  OF  A  PRECIOUS  METAL  AS  MONEY  CREATE 
SUCH  A  DEMAND  FOR  THAT  METAL  AS  WILL  CAUSE  A 
RISE  IN  ITS  MARKET  PRICE,  AND  AN  INCREASE  IN  ITS 
PURCHASING  POWER  ? 84-108 

The  theory  that  such  use  of  a  metal  does  increase  its  price  and 

purchasing  power,  the  accepted  one  .....       84 

The  correctness  of  this  theory  merely  assumed  ...       85 

Coinage  does  not  increase  the  value  of  the  metal       ...       85 
Making  coin  a  legal  tender  does  not  increase  its  value       .         .       87 
The  demand  for  consumption,  and  which  takes  a  commodity 

out  of  commerce,  the  only  demand  which  increases  values,       88 
The  use  of  the  precious  metals  as  money  is  not  such  a  demand,       89 
The  use  of  two  metals  concurrently  as  money,  at  a  fixed  ratio, 

does  not  increase  their  value      ......       90 

History  and  experience     ........       93 

Demonetization  by  Germany  in  1873,  and  the  subsequent  action 
of  the  Latin  Union  did  not  cause  the  fall  of  the  price  of 
silver  ..........  102 

CHAPTER  VII. 

OF  THE  MEANING  OF  THE  EXPRESSIONS  "THE  APPRECIA- 
TION OF  GOLD  "  AND  "  THE  DEPRECIATION  OF  GOLD  "  109-166 

Causes  which  make  changes  in  prices        .         .         .         .         .109 

A  fall  in  prices  and  appreciation  of  gold  regarded  by  econom- 
ists as  synonymous  terms  .         .         .         .         .         .         .no 

Bimetallists  regard  every  change  in  prices  as  the  fault  of  gold  .     no 
F.  A.  Walker  quoted        .         .         .         .         .         .         .         .in 

President  E.  Benjamin  Andrews  quoted   .          .          .          .  117 

The  several  claims  and  propositions  of  the  bimetallist       .          .      128 
The  reasons  given  by  bimetallists  for  charging  all  changes  in 

prices  to  the  appreciation  or  depreciation  of  gold       .         .130 
These  reasons  unsound     .         .         .         .         .         .         .         .131 

The  bimetallisms  "  Honest  Dollar "  .         .         .         .         .160 

Caution  not  to,  unqualifiedly,  accept  statistics  and  index  num- 
bers showing  a  general  fall  of  prices,  or  assumptions  that 
there  has  been  a  general  fall  of  prices  ....  164 


VI  CONTENTS 

CHAPTER  VIII. 

PAGE 

WHY  THE  COMMODITY  USED  AS  MONEY  MUST  HAVE 

EXCHANGEABLE  VALUE          .        .      167-185 

Plutarch  on  the  iron  money  of  Sparta        .....  168 

Ricardo's  doctrine  on  debased-coin  and  paper-money  values      .  169 

Evils  of  debased  money    .         .          .         .         ,         .         .  175 

Hallam  quoted          .         .         .         .         .         .         .         .  175 

Macaulay  quoted      .          .          .         .         .         .         .         .  175 

Shaw  quoted    .         .         .         .         .         .         .         .         .         .178 

The  verdict  of  history 1 80 

Ricardo  in  contradiction  of  his  former  statements     .          .  181 

The  answer  to  the  question  made  the  title  of  this  chapter           .  185 

PART  II. 

OF  CREDIT  AND   THE  CREDIT  SYSTEM     186-212 

CHAPTER  I. 
GENERAL  OBSERVATIONS         .         .      186-190 

Different  senses  in  which  the  word  credit  is  used       .          .          .186 
Origin  of  the  credit  system        .......      187 

Credit  system  not  dependent  upon  the  quantity  of  money  .      189 

CHAPTER  II. 

BOOK  ACCOUNTS      .        .        .      191-193 
CHAPTER  III. 

PROMISSORY  NOTES  AND  BILLS  OF  EXCHANGE      194-195 
CHAPTER  IV. 

DEPOSITS  IN  BANKS,  BANK  CHECKS,  AND  BANKS    196-202 

What  is  a  bank? 196 

Method  of  business  .........      198 


CONTENTS  VI 1 

PAGE 

How  debts  are  discharged  by  bank  deposits      .          .  199 

Where  there  is  but  one  bank    .......      199 

Where  there  are  two  or  more  banks  .....      201 

CHAPTER  V. 
THE  CLEARING-HOUSE          .         .      203-212 

Mahomet's  clearing  on  the  Day  of  Judgment    ....  203 

The  payments  or  settlements  at  fairs  in  the  Middle  Ages  .  205 

The  modern  clearing-house       .......  208 

Effect  of  the  operations  through  the  clearing-house  .         .         .  212 

PART  III. 

SOME   GENERAL    TOPICS  .         .      213-293 
CHAPTER  I. 

BIMETALLISM          .         .         .      213-266 

National  bimetallism         .          .          .          .         .         .         .         .213 

International  bimetallism          .......  213 

Distinctions  between         ........  214 

Conditions  essential  to      .........  214 

Auxiliary  conditions  required   .......  227 

Government  cannot,  by  law,  control  or  fix  the  relative  values 

of  silver  and  gold       ........  232 

Bimetallism  in  France      ........  234 

Alleged  superiority  of  international  over  national  bimetallism,  248 
Supposed  benefits  to  be  derived  from  the  introduction  of  bi- 
metallism          .........  253 

Comparison  of  supposed  benefits  with  the  disadvantages  of       .  266 

CHAPTER  II. 

SYMMETALLISM        .        .         .      270-280 

Definition  of    ...........     270 

Advantages  claimed  for  the  system  .  •  .          .          .          .     272 


Vlll  CONTENTS 


Its  danger  of  breaking  down     .......     273 

How  it  is  expected  to  make  the  standard  more  stable        .          .     274 
Disadvantages  of      .........      276 

CHAPTER  III. 

THE  TABULAR  STANDARD  OF  VALUE      .      281-293 

This  standard  explained  by  Jevons  and  Walker         .         .          .281 
The  system  considered     .         .         .         .         .         .         .         .285 

Difficulties  in  the  way  of  its  introduction  ....     286 

Difficulties  in  its  practical  operation          .....     288 

No  distinction  between  contracts  for  the  payment  or  delivery  of 

money  and  contracts  for  the  delivery  of  other  commodities,     291 


MONEY   AND    BIMETALLISM 


MONEY  AND  BIMETALLISM 


PART  I 

OF   THE    NATURE,    USES,    AND   VALUE   OF 
MONEY 


CHAPTER  I 
WHAT   IS   MONEY  ? 

§  I.     OUR  money,  at  present,  consists,  mainly, 
of  three  kinds. 

(1)  Gold  money. — A  piece  of  gold  metal  stamped 
or  coined  and  given  the  denomination  of  a  certain 
number  of  dollars, — five    dollars,  ten   dollars,  and 
twenty    dollars,    half-eagles,    eagles,    and    double- 
eagles. 

(2)  Paper  money. — A  piece  of  paper  upon  which 
is  stamped  or  engraved  a  promise  to  pay  a  certain 
number  of  dollars,  issued  in  the  form  of  a  promis- 
sory   note   by  the    Government    or   by   a   national 
bank.     As  this  money  is  really  a  credit,  it  would  be 
more  proper  to  call  it  credit  money,  but  the  name 
of  paper  money  has   become  so   universal  that  it 
will  be  best  to  still  adhere  to  it. 


2  NATURE,    USES,   AND    VALUE   OF   MONEY 

(3)  Silver  money. — A  piece  of  silver  metal  stamped 
or  coined  and  given  a  certain  denomination,  one 
dollar,  half-dollar,  quarter  of  a  dollar,  and  a  dime, 
the  stamped  or  coin  value  of  this  silver  money  being 
much  greater  than  the  actual  market  value  of  the 
silver  metal  contained  in  the  coin,  but,  being  accom- 
panied by  either  the  express  or  implied  promise  of 
the  Government  to  pay  or  redeem  it,  in  gold,  dollar 
for  dollar,  at  its  coined  or  mint  value,  it  is  current 
at  its  coined  or  mint  value.  Our  silver  certificate, 
being  nothing  more  than  a  warehouse  receipt  cer- 
tifying that  a  certain  number  of  silver  dollars  are  on 
deposit  in  the  United  States  Treasury,  which  dollars 
will  be  delivered  to  the  holder  of  the  certificate  on 
demand,  are  virtually  the  same  as  the  silver  dollars, 
and  will  be  so  considered ;  and  the  fractional  silver 
currency,  being  governed  by  the  same  principles  as 
the  silver  dollar,  will  also  be  considered  as  silver 
dollars. 

§  2.  The  metal  used  as  money,  and  which  is 
coined  for  use  as  such,  is  a  commodity.  After 
being  coined  for  use  as  money  it  is  still  a  commodity, 
and  remains  so,  and  it  still  is  and  remains  the  same 
commodity  it  was  before  being  coined.  Coining 
does  not  change  its  character  as  a  commodity  in 
any  respect.  It  merely  certifies  to  the  weight  and 
fineness  of  the  metal  contained  in  the  coin.  Un- 
coined metal  is  called  bullion,  but  calling  it  bullion 
does  not  change  the  character  of  the  metal;  it  still 
remains  the  same  commodity.  Coined  metal  is  now 
called  money,  but  calling  it  money  no  more  changes 
its  character  as  a  commodity  than  the  name  of  bullion 


WHAT   IS   MONEY?  3 

changes  the  character  of  the  metal  as  a  commodity; 
whether  coined  or  uncoined,  whether  called  bullion 
or  money,  it  remains  and  is  the  same  commodity. 

A  brief  glance  at  the  history  of  the  introduction 
of  the  use  of  money  will  make  all  this  perfectly 
plain.  Aristotle  1  gives  the  following  account : 

"  Now  it  is  plain  that  barter  could  have  no  place  in  the 
first  community,  that  is  to  say,  in  the  household;  but 
must  have  begun  when  the  number  of  those  who  com- 
posed the  community  came  to  be  enlarged ;  for  the  former 
of  these  had  all  things  the  same  and  in  common ;  but 
those  who  came  to  be  separated  had  in  common  many 
other  things  which  both  parties  were  obliged  to  exchange 
as  their  wants  arose.  And  this  custom  of  barter  is  still 
preserved  amongst  many  barbarous  nations,  who  ex- 
change one  necessary  for  another,  but  do  nothijig  more; 
for  example,  giving  and  receiving  wine  for  corn,  and  the 
like  in  other  such  things.  This  sort  of  barter  then  is 
not  contrary  to  nature,  nor  yet  is  it  a  species  of  money- 
getting;  but  it  is  necessary  in  order  to  complete  that  in- 
dependence which  is  natural.  From  this  barter,  how- 
ever, arose  the  use  of  money,  as  might  be  expected;  for 
as  the  needful  means  for  importing  what  was  wanted,  or 
for  exporting  a  surplus  was  often  at  a  great  distance,  the 
use  of  money  was  of  necessity  devised.  For  it  is  not 
everything  which  is  naturally  useful  that  is  easy  of  car- 
riage ;  and  for  this  reason  men  invented  among  them- 
selves, by  way  of  exchange,  something  which  they  should 
mutually  give  and  take,  and  which  being  really  valuable 
in  itself,  might  easily  be  passed  from  hand  to  hand  for 
the  purposes  of  daily  life,  as  iron  and  silver,  or  anything 
else  of  the  same  nature.  This  at  first  had  a  fixed  stand- 
1  Politics,  Bk.  I.,  chap.  ix. 


4  NATURE,    USES,   AND   VALUE   OF   MONEY 

ard  simply  according  to  its  weight  or  size;  but  in  process 
of  time  they  put  upon  it  a  certain  stamp,  to  save  the 
trouble  of  weighing,  and  this  stamp  was  affixed  as  a  sign 
of  its  express  value." 

Adam  Smith,  in  his  work  entitled  Wealth  of  Na- 
tions,1 gives  the  following  history  of  the  introduction 
of  the  use  of  money: 

"  But  when  the  division  of  labor  first  begun  to  take 
place,  this  power  of  exchanging  must  frequently  have 
been  very  much  clogged  and  embarrassed  in  its  opera- 
tions One  man  we  shall  suppose  has  more  of  a  certain 
commodity  than  he  himself  has  occasion  for,  while 
another  has  less.  The  former  consequently  would  be 
glad  to  dispose  of,  and  the  latter  to  purchase,  a  part  of 
this  superfluity.  But,  if  this  latter  should  chance  to  have 
nothing  that  the  former  stands  in  need  of,  no  exchange 
can  be  made  between  them.  The  butcher  has  more 
meat  in  his  shop  than  he  himself  can  consume,  and  the 
brewer  and  the  baker  would  each  of  them  be  willing  to 
purchase  a  part  of  it.  But  they  have  nothing  to  olter  in 
exchange,  except  the  different  productions  of  their  re- 
spective trades,  and  the  butcher  is  already  provided  with 
all  the  bread  and  beer  which  he  has  immediate  occasion 
for.  No  exchange  can,  in  this  case,  be  made  between 
them.  He  cannot  be  their  merchant,  nor  they  his  cus- 
tomers; and  they  are  all  of  them  thus  mutually  less 
serviceable  to  one  another.  In  order  to  avoid  the  incon- 
veniency  of  such  situations,  every  prudent  man  in  every 
period  of  society,  after  the  first  establishment  of  the 
division  of  labor,  must  naturally  have  endeavored  to 
manage  his  affairs  in  such  a  manner  as  to  have  at  all 

>Bk.  I.,  chap.  iv. 


WHAT   IS   MONEY  ?  5 

times  by  him,  besides  the  peculiar  produce  of  his  own 
industry,  a  certain  quantity  of  some  one  commodity  or 
other,  such  as  he  imagined  few  people  would  be  likely 
to  refuse  in  exchange  for  the  produce  of  their  industry. 

"  Many  different  commodities,  it  is  probable,  were  suc- 
cessively both  thought  of  and  employed  for  this  purpose. 
In  the  rude  ages  of  society  cattle  are  said  to  have  been 
the  common  instrument  of  commerce;  and,  though  they 
must  have  been  a  most  inconvenient  one,  yet  in  old  times 
we  find  things  were  frequently  valued  according  to  the 
number  of  cattle  which  had  been  given  in  exchange  for 
them.  The  armor  of  Diomede,  says  Homer,  cost  only 
nine  oxen;  but  that  of  Glaucus  cost  an  hundred  oxen. 
Salt  is  said  to  be  the  common  instrument  of  commerce 
and  exchange  in  Abyssinia;  a  species  of  shells  in  some 
parts  of  the  coast  of  India;  dried  cod  at  Newfoundland; 
tobacco  in  Virginia;  sugar  in  some  of  our  West  Indian 
colonies;  hides  or  dressed  leather  in  some  other  coun- 
tries; and  there  is  at  this  day  a  village  in  Scotland  where 
it  is  not  uncommon,  I  am  told,  for  a  workman  to  carry 
nails  instead  of  money  to  the  baker's  shop  or  the  ale- 
house. 

"  In  all  countries,  however,  men  seem  at  last  to  have 
been  determined  by  irresistible  reasons  to  give  the  prefer- 
ence, for  this  employment  to  metals  above  every  other 
commodity.  Metals  can  not  only  be  kept  with  as  little  loss 
as  any  other  commodity,  scarce  anything  being  less  per- 
ishable than  they  are,  but  they  can  likewise,  without  any 
loss,  be  divided  into  any  number  of  parts,  as  by  fusion 
those  parts  can  easily  be  reunited  again ;  a  quality  which 
no  other  equally  durable  commodities  possess,  and  which 
more  than  any  other  quality  renders  them  fit  to  be  the 
instruments  of  commerce  and  circulation.  The  man  who 
wanted  to  buy  salt,  for  example,  and  had  nothing  but 


6     NATURE,  USES,  AND  VALUE  OF  MONEY 

cattle  to  give  in  exchange  for  it,  must  have  been  obliged 
to  buy  salt  to  the  value  of  a  whole  ox,  or  a  whole  sheep, 
at  a  time.  He  could  seldom  buy  less  than  this,  because 
what  he  was  to  give  for  it  could  seldom  be  divided  with- 
out loss;  and  if  he  had  a  mind  to  buy  more,  he  must,  for 
the  same  reasons,  have  been  obliged  to  buy  double  or 
triple  the  quantity,  the  value,  to  wit,  of  two  or  three  oxen, 
or  of  two  or  three  sheep.  If,  on  the  contrary,  instead  of 
sheep  or  oxen,  he  had  metals  to  give  in  exchange  for  it, 
he  could  easily  proportion  the  quantity  of  the  metal  to 
the  precise  quantity  of  the  commodity  which  he  had 
immediate  occasion  for. 

"  Different  metals  have  been  made  use  of  by  different 
nations  for  this  purpose.  Iron  was  the  common  instru- 
ment of  commerce  among  the  ancient  Spartans;  copper 
among  the  ancient  Romans;  and  gold  and  silver  among 
all  rich  and  commercial  nations. 

;<  Those  metals  seem  originally  to  have  been  made  use 
of  for  this  purpose  in  rude  bars  without  any  stamp  or 
coinage.  Thus  we  are  told  by  Pliny  (Plin.  Hist.  Nat., 
lib.  xxxiii,  cap.  3),  upon  the  authority  of  Timseus,  an 
ancient  historian,  that,  till  the  time  of  Servius  Tullius, 
the  Romans  had  no  coined  money,  but  made  use  of  un- 
stamped bars  of  copper  to  purchase  whatever  they  had 
occasion  for.  These  rude  bars,  therefore,  performed  at 
this  time  the  functions  of  money. 

"  The  use  of  metals  in  this  rude  state  was  attended 
with  two  very  considerable  inconveniences:  first,  with 
the  trouble  of  weighing;  and,  secondly,  with  that  of 
assaying  them.  In  the  precious  metals,  where  a  small 
difference  in  the  quantity  makes  a  great  difference  in  the 
value,  even  the  business  of  weighing  with  proper  exact- 
ness requires  at  least  very  accurate  weights  and  scales. 
The  weighing  of  gold  in  particular  is  an  operation  of 


WHAT   IS    MONEY  ?  7 

some  nicety.  In  the  coarser  metals,  indeed,  where  a 
small  error  would  be  of  little  consequence,  less  accuracy 
would,  no  doubt,  be  necessary.  Yet  we  should  find  it  ex- 
cessively troublesome,  if  every  time  a  poor  man  had  occa- 
sion either  to  buy  or  sell  a  farthing's  worth  of  goods,  he 
was  obliged  to  weigh  the  farthing.  The  operation  of 
assaying  is  still  more  difficult,  still  more  tedious,  and, 
unless  a  part  of  the  metal  is  fairly  melted  in  the  crucible, 
with  proper  dissolvents,  any  conclusion  that  can  be  drawn 
from  it  is  extremely  uncertain.  Before  the  institution  of 
coined  money,  however,  unless  they  went  through  this 
tedious  and  difficult  operation,  people  must  always  have 
been  liable  to  the  grossest  frauds  and  impositions,  and 
instead  of  a  pound  weight  of  pure  silver,  or  pure  copper, 
might  receive  in  exchange  for  their  goods  an  adulterated 
composition  of  the  coarsest  and  cheapest  materials,  which 
had,  however,  in  their  outward  appearance  been  made  to 
resemble  those  metals.  To  prevent  such  abuses,  to  facili- 
tate exchanges,  and  thereby  to  encourage  all  sorts  of  in- 
dustry and  commerce,  it  has  been  found  necessary  in  all 
countries  that  have  made  any  considerable  advances 
towards  improvement,  to  affix  a  public  stamp  upon  cer- 
tain quantities  of  such  particular  metals  as  were  in  those 
countries  commonly  made  use  of  to  purchase  goods. 
Hence  the  origin  of  coined  money,  and  of  those  public 
offices  called  mints;  institutions  exactly  of  the  same 
nature  with  those  of  the  aulnagers  and  stamp  masters  of 
woollen  and  linen  cloth.  All  of  them  are  equally  meant 
to  ascertain  by  means  of  a  public  stamp,  the  quantity  and 
uniform  goodness  of  those  different  commodities  when 
brought  to  market. 

'  The  first  public  stamps  of  this  kind  that  were  affixed 
to  the  current  metals,  seem  in  many  cases  to  have  been 
intended  to  ascertain  what  it  was  both  most  difficult  and 


8     NATURE,  USES,  AND  VALUE  OF  MONEY 

most  important  to  ascertain, the  goodness  or  fineness  of  the 
metal,  and  to  have  resembled  the  sterling  mark  which  is 
at  present  affixed  to  plate  and  bars  of  silver,  or  the 
Spanish  mark  which  is  sometimes  affixed  to  ingots  of 
gold,  and  which  being  struck  only  upon  one  side  of  the 
piece,  and  not  covering  the  whole  surface,  ascertains 
the  fineness,  but  not  the  weight  of  the  metal.  Abraham 
weighs  to  Ephron  the  four  hundred  shekels  of  silver  which 
he  had  agreed  to  pay  for  the  field  of  Machpelah.  They 
are  said,  however,  to  be  the  current  money  of  the  mer- 
chant, and  yet  are  received  by  weight  and  not  by  tale,  in 
the  same  manner  as  ingots  of  gold  and  bars  of  silver  are 
at  present.  The  revenues  of  the  ancient  Saxon  kings  of 
England  are  said  to  have  been  paid,  not  in  money,  but 
in  kind,  that  is,  in  victuals  and  provisions  of  all  sorts. 
William  the  Conqueror  introducd  the  custom  of  paying 
them  in  money.  This  money,  however,  was  for  a  long 
time  received  at  the  exchequer  by  weight  and  not  by 
tale. 

"  The  inconveniency  and  difficulty  of  weighing  those 
metals  with  exactness  gave  occasion  to  the  institution  of 
coins,  of  which  the  stamp,  covering  entirely  both  sides 
of  the  piece  and  sometimes  the  edges  too,  was  supposed 
to  ascertain  not  only  the  fineness  but  the  weight  of  the 
metal.  Such  coins,  therefore,  were  received  by  tale  as 
at  present,  without  the  trouble  of  weighing." 

The  same  author1  says: 

"  These  qualities  of  utility,  beauty,  and  scarcity,  are 

the  original  foundation  of  the  high  price  of  those  metals 

[gold  and  silver],  or  of  the  great  quantity  of  other  goods 

for  which  they  can   everywhere   be   exchanged.     This 

1  Bk.  I.,  chap,  xi.,  part  2. 


WHAT   IS    MONEY  ?       -  9 

value  was  antecedent  to  and  independent  of  their  being 
employed  as  coin,  and  was  the  quality  which  fitted  them 
for  that  employment." 

Robert  Morris,  in  his  report  on  coinage  to  the 
Congress  of  the  Confederation,  remarks  as  follows : 

"  It  is  not  necessary  to  mention  what  is  in  everybody's 
mouth,  that  the  precious  metals  were  first  used  as  bullion, 
and  that  the  inconvenience  of  weighing  and  the  difficulty 
of  assaying  introduced  the  practice  of  coining,  in  order 
that  the  weight  and  fineness  might  be  known  at  the  first 
view,  and  of  consequence  the  value  be  instantly  ascer- 
tained." 

Prof.  Francis  A.  Walker,  in  his  work  entitled 
Money,  Trade,  and  Industry,  pp.  4,  5,  gives  the  fol- 
lowing account  of  the  introduction  of  tobacco  for 
use  as  money  in  Virginia: 

"  Let  us  take  an  illustration  from  the  history  of  Vir- 
ginia. Tobacco  early  became  the  staple  export  of  that 
colony.  Since  tobacco  was  in  unfailing  demand  for  ship- 
ment abroad,  it  was  readily  taken  at  the  country  store. 
Every  planter  brought  his  tobacco  thither  with  perfect 
assurance,  knowing  that  it  would  be  taken  as  a  matter  of 
course.  Every  week  or  every  month,  the  trader  loaded 
up  his  teams,  and  sent  his  stock  tobacco  to  the  seashore, 
where,  in  the  chief  towns,  it  was  exchanged  against  West 
India  goods,  dry  goods,  hardware,  etc.,  imported  from 
abroad.  With  these  the  teams  returned  loaded;  and  the 
planters  took  the  rum,  the  molasses,  the  cloth,  the  boots, 
the  tools  they  wanted,  to  the  amount  of  the  credit  given 
them  for  their  tobacco. 

"  Such  a  use  of  tobacco,  however,  did  not  make  it 
money.  The  transactions  thus  far  described  were  merely 


10         NATURE,  USES,  AND   VALUE   OF   MONEY 

instances  of  barter,  notwithstanding  that  the  foreign  ex- 
porter, the  Virginia  importer,  and  the  country  storekeeper 
were  all  intermediaries  between  the  tobacco  grower  and 
the  planter  who  produced  the  rum  and  molasses  of 
Havana,  or  the  manufacturer  of  cloth,  of  boots,  or  of 
hoes  in  Old  England. 

"  But  the  fact  that  tobacco  was  thus  freely  taken  at 
the  country  store  soon  led  to  a  further  extension  of  its 
use  in  exchange  which  constituted  it  money.  Since  it 
was  so  freely  taken  at  the  store,  in  exchange  for  goods  of 
every  kind,  it  was  freely  taken  between  man  and  man 
throughout  the  community.  The  lawyer  and  the  physi- 
cian did  not  hesitate  to  receive  their  pay  in  tobacco, 
because  tobacco  was  always  good  for  groceries  and  dry 
goods;  while  the  fact  that  tobacco  was  taken  not  only 
by  the  storekeeper  but  also  by  the  lawyer  and  physician 
made  the  farmer  who  raised  corn  willing  also  to  take  it 
in  exchange  for  his  product. 

"  And  so  tobacco  became  money  in  Virginia." 

From  the  history  of  money  it  plainly  appears 
that  the  commodity  which  was  selected  for  use  as 
money  was  not  so  selected  by  any  positive  law  or 
legislative  act,  but  by  the  common  consent  of  the 
people;  that  the  article  was  so  selected  on  account 
of  some  qualities  connected  with  it  which  made  it 
acceptable  for  use  as  money,  and  the  reason  for  its 
adoption  for  use  as  money  was  the  fact  that  it  was 
a  commodity  possessing  these  qualities;  that  the 
precious  metals  were  introduced  into  use  as  moneys 
in  the  same  manner  and  for  the  same  reasons  (their 
peculiar  qualities  making  them  in  a  high  degree 
suitable  for  that  purpose),  that  the  other  commodi- 
ties mentioned  were  introduced  for  that  purpose; 


WHAT   IS   MONEY  ?  II 

that  they  were  used  as  money  long  prior  to  any 
coinage,  being  first  used  in  rude  bars  without  any 
stamp  or  coinage;  that  they  were  so  used  by  the 
parties  dealing  with  each  other,  themselves  weighing 
and  assaying  them,  which  were  both  troublesome 
and  difficult;  that  these  troubles  and  difficulties 
caused  the  origin  of  coined  money  at  the  mints; 
that  the  precious  metals  were  not  used  as  money 
because  they  were  coined,  but  were  coined  because 
they  were  used,  and  were  expected  to  be  used,  as 
money;  that  they  are  still  assayed  and  weighed 
when  used  as  money,  the  only  difference  being  that 
in  olden  times  they  were  weighed  and  assayed  by 
the  parties  dealing  with  each  other,  and  now  they 
are  weighed  and  assayed  by  government,  and  that 
coinage  is  nothing  more  than  a  certificate  of  the 
weight  and  fineness  of  the  metal  contained  in  the 
coin,  just  as  woollen  and  linen  cloth,  tobacco,  and 
other  commodities  are  inspected  and  measured, 
and  a  certificate  of  the  quality  and  quantity  at- 
tached, and,  therefore,  coining  a  piece  of  metal  does 
not  change  its  character  as  a  commodity  any  more 
than  certifying  the  quality  and  quantity  of  other 
commodities  changes  their  character  as  commodities, 
and  that  the  metal  still  remains  the  same  commodity 
in  the  state  of  coin  as  it  was  in  the  state  of  bullion. 
A  certain  metal  commodity,  having  been  selected 
for  use  as  money  on  account  of  its  peculiar  fitness 
for  that  purpose,  if  coining  this  metal  would  change 
its  character  as  a  commodity,  it  would  no  longer 
possess  those  peculiar  qualities  which  made  the 
metal  a  suitable  commodity  for  use  as  money,  and 


12         NATURE,  USES,  AND   VALUE   OF   MONEY 

which  qualities  were  its  principal  recommendation 
for  use  for  that  purpose. 

Coin  can  readily  be  converted  into  bullion  at  an 
insignificant  expense  by  melting;  if  the  coin  were  a 
commodity  different  from  the  metal  contained  in  it, 
or  different  from  bullion,  this  melting  would  not 
convert  it  into  bullion.  But  melting  does  change 
the  coin  into  bullion,  and  yet  nothing  is  changed 
but  the  form  of  the  metal, — changed  from  coin  into 
bullion.  The  distinction,  then,  between  coin  and 
bullion,  as  commodities,  is  a  mere  matter  of  form, 
and  that  is  the  same  as  saying  that  there  is  no  dis- 
tinction at  all. 

Apply  another  test  to  it,  where  the  form  is  not 
even  changed,  that  is,  when  coin  is  exported.  It  is 
not  exported  as  coin  but  as  bullion  and  is  considered 
the  same  as  bullion.  If  coined  money  is  a  commo- 
dity different  from  the  metal  contained  in  it,  what 
changes  it  in  exportation  to  another  commodity, 
bullion  ?  Nothing  changes  the  coin  as  a  commodity, 
because  it  always  was  the  same  identical  commo- 
dity as  the  metal  contained  in  it.  It  remained  the 
same  commodity  after  coinage  as  it  was  in  the  state 
of  bullion. 

I  am  well  aware  that  in  spending  so  much  time  in 
establishing  this  point,  I  lay  myself  open  to  the 
charge  of  wasting  time  in  proving  a  fact  which  is 
everywhere  admitted  and  which  is  taught  by  all 
political  economists.  My  justification  is  the  great 
importance  of  having  firmly  fixed  in  the  mind,  on 
account  of  the  important  consequences  flowing  from 
it,  this  fact,  namely,  that  coined  money  remains, 


WHAT    IS    MONEY  ?  13 

after  coinage,  the  same  commodity  as  it  was  in  a  state 
of  bullion,  and  whether  the  metal  be  coined  or  un- 
coined it  is  always  the  same  metal.  And,  while  it  is 
true  that  all  political  economists  are  very  careful  to 
instruct  their  readers  that  money  is  a  commodity 
and  is  governed  by  the  same  laws  as  any  other  com- 
modity, yet  many  of  them  often  ignore  their  own 
instructions,  and  treat  metallic  money  either  as  no 
commodity  at  all,  merely  as  a  mere  sign  or  ticket  of 
value,  or  if  they  do  treat  it  as  a  commodity,  they 
treat  it  as  a  different  sort  of  a  commodity  from  the 
metal  contained  in  it. 

§  3.  Paper  money,  being  a  promise,  on  the  part 
of  some  one,  to  pay,  is  a  credit.  As  such,  though 
intangible,  it  is  property,  an  asset;  in  the  hands  of 
the  holder  it  is  an  evidence  of  indebtedness  against 
the  maker,  it  is  bought  and  sold,  loaned  and  bor- 
rowed, the  same  as  tangible  property,  and  is  there- 
fore a  commodity.  As  already  stated  this  paper 
money  is  in  the  form  of  promissory  notes,  and 
paper  money  is  called  notes,  and,  as  such,  unless 
restrained  by  positive  law,  or,  what  is  the  same 
thing,  by  legislation,  these  notes  to  be  used  as 
money  could  be  just  as  well  issued  by  corporations, 
which  have  the  power  conferred  upon  them  to  issue 
promissory  notes,  or  by  individuals.  The  value  of 
these  notes  used  as  money  depends,  like  the  value 
of  all  other  notes,  upon  the  solvency  and  credit  of 
the  issuer,  or  on  these  and  the  securities  pledged 
for  their  payment.  In  its  nature  such  a  note  used 
as  money  is  the  same  as  any  other  note  of  like  form 
and  tenor,  and,  except  where  changed  by  legislation 


14         NATURE,  USES,  AND   VALUE   OF  MONEY 

affecting  it,  such  note  used  as  money  is  subject  to 
the  same  laws  as  other  notes. 

§  4.  Our  silver  dollars  and  silver  certificates  are 
anomalous  in  this,  that  their  coined  or  mint  value 
far  exceeds  the  value  of  the  quantity  of  the  metal 
contained  in  the  coin,  yet  they  pass  current  at  their 
mint  value,  or  as  of  the  same  value  as  a  gold  dollar, 
which  is  what  we  mean  when  we  speak  of  the  mint 
value  of  the  silver  dollar.  The  value  of  the  coin, 
over  and  above  the  actual  value  of  the  metal  con- 
tained in  it,  is  sustained  by  the  implied  or  assumed 
agreement  by  the  Government  to  maintain  it  at  par 
with  gold,  and,  for  this  purpose,  to  redeem  it,  the 
silver  coin,  in  gold. 

The  value,  then,  of  this  silver  coin  is  made  up 
partly  of  the  value  of  the  metal  contained  in  it,  and 
partly  by  the  said  promise  or  agreement  on  the  part 
of  the  Government,  and  it  consequently  partakes  of 
the  nature  of  both  gold  and  paper  money.  In  so 
far  as  the  value  of  the  metal  in  the  coin  is  con- 
cerned it  is  the  same  as  gold  money,  and  in  so  far 
as  the  promise  or  agreement  of  the  Government  is 
concerned,  it  is  credit  money  just  like  Government 
or  national  bank  notes. 

Our  silver  currency  is  neither  wholly  of  one  kind 
of  money  nor  of  the  other,  and  hence  it  is  a  financial 
mongrel. 

Finally,  a  commodity,  either  a  piece  of  gold,  or  a 
promise  in  the  form  of  a  promissory  note  to  pay 
a  certain  quantity  of  gold,  or  a  piece  of  silver  accom- 
panied with  a  promise  to -make  it  equal  with  gold,  is 
money. 


CHAPTER  II 

WHAT     MONEY    IS 

§  I.  MONEY  is  any  commodity  which  may  be 
selected  and  adopted  by  common  consent,  or  by  the 
authority  of  government,  as  a  means  to  facilitate 
trade,  the  maintenance  of  government,  and  the  ad- 
ministration of  justice;  and  for  these  purposes  it 
serves  as  an  instrument  for  the  satisfaction  and  dis- 
charge of  liabilities,  as  a  common  consideration  to 
support  contracts,  and  as  a  measure  in  terms  of 
which  the  prices  of  commodities  and  the  extent  and 
quantity  of  liabilities  are  expressed.  The  several 
purposes  for  which  money  serves  are  called  the  func- 
tions of  money. 

§  2.  It  has  already  been  shown  that  money  is  a 
commodity. 

§  3.  In  the  origin  of  the  use  of  money  the  com- 
modity used  for  that  purpose  was  selected  and 
adopted  by  common  consent,  but  it  is  now  usual  for 
the  government  to  stipulate  what  shall  be  used  as 
money,  and  if  this  money  be  accepted  by  the  com- 
mon consent  of  dealers  in  commodities  then  it  is 
money.  Paper  money  is  issued  either  directly  by 
the  government  or  by  banks  by  the  authority  of 
government.  Money  may  still,  however,  be  adopted 
and  used  as  such  by  common  consent,  such  as  was 

15 


16         NATURE,  USES,  AND   VALUE   OF   MONEY 

the  gold  money  in  use  in  California  in  the  early  days 
of  the  gold  discovery  there.  The  government  gen- 
erally, so  far  as  relates  to  the  precious  metals,  con- 
tents itself  with  providing  for  their  coinage  and  their 
power  of  payment,  and  it  should  do  no  more;  yet 
government  may,  by  the  coinage  of  both  of  the 
metals,  silver  and  gold,  at  a  fixed  ratio,  and  by 
rating  one  of  the  metals  in  such  ratio  below  its 
market  value,  drive  such  metal  out  of  the  circulation 
as  money.  Government  cannot  fix  the  values  of  the 
precious  metals. 

§  4.  Money  as  a  means  to  facilitate  trade,  the 
maintenance  of  government,  and  the  administration 
of  justice.  By  the  word  "  means  "  it  is  not  intended 
to  convey  the  idea  that  money  is  a  mere  intermediary 
or  a  mere  sign ;  or  that  it  is,  as  Adam  Smith  says, 
nothing  but  a  "  bill  for  a  certain  quantity  of  neces- 
saries and  conveniences  upon  all  the  tradesmen  in 
the  neighborhood  "  J;  or  that  "  they  are  a  sort  of 
tickets  or  orders, ' '  as  laid  down  by  John  Stuart  Mill.2 

'  Go  and  barter  your  hat  for  money,'  cried  the  shoe- 
maker, *  then  bring  me  that  money,  and  the  shoes  shall  be 
yours.'  In  other  words,  the  shoemaker  demands  money, 
and  with  it  he  selects  for  himself  in  any  shop  any  article 
which  he  desires  to  attain.  That  is  the  action  and  the 
essence  of  the  use  of  money.  A  sale  for  money  is  thus 
half  a  transaction."  * 

This  language  is  misleading,  and  is  apt  to  convey 
the  impression  that  money  is  nothing  of  itself,  and 

1  Wealth  of  Nations,  Bk.  II.,  chap.  i. 

2  Political  Economy,  Bk.  III.,  chap.  vii. 

3  Prof.  Bonamy  Price,  Currency  and  Banking,  p.  IO. 


WHAT   MONEY   IS  I? 

hence  many  persons  conclude  that  money  need  not 
be  a  thing  of  value.  It  is  not  correct  to  say  that  a 
purchase  and  sale  for  money  is  an  incompleted  trans- 
action. A  purchase  and  a  sale  of  a  commodity  is  a 
completed  transaction.  The  authors  above  quoted 
do  not  mean  to  be  understood  that  money  is  nothing 
of  itself,  and  that  a  money  transaction  is  but  half  a 
transaction,  as  I  shall  presently  show  from  further 
quotations  from  the  same  works.  The  idea  all  of 
them  wished  to  convey  is,  that  the  seller  of  goods 
does  not  wish  to  secure  possession  of  money  merely 
for  its  own  sake,  but  for  what  he  can  procure  with  the 
money.  This  is  no  doubt  true ;  but  the  purpose  of 
the  seller  as  to  the  use  of  the  money  has  nothing  to 
do  with  the  transaction  between  him  and  the  pur- 
chaser. The  purpose  of  the  seller  may  not  be  to 
exchange  the  money  received  for  commodities  differ- 
ent from  what  he  sold ;  he  may  intend  to  purchase 
with  the  money  the  same  kind  of  goods  as  he  had 
sold.  The  purchaser  of  the  goods  may  intend  to 
sell  those  very  goods  again  for  money,  and  with  the 
money  so  acquired  purchase  more  goods  of  the 
same  kind,  yet  no  one  would  think  that  any  one  of 
these  transactions  was  but  a  half-transaction.  The 
truth  is  that  the  purpose  of  the  seller  in  the  use  of 
the  money  received  from  his  purchaser,  on  a  sale 
of  goods,  does  not  enter  at  all  in  the  transaction 
between  him  and  the  purchaser,  nor  does  it  prevent 
the  transaction  from  being  final  and  complete.  The 
sense  in  which  the  word  "  means  "  is  here  used  is 
that  of  an  instrument,  or  a  tool  by  the  help  of  which 
the  holder  of  monev  acquires  title  to  the  goods  he 


18         NATURE,  USES,  AND   VALUE   OF   MONEY 

purchases.  A  railroad  and  a  steamboat  are  mere 
instruments  for  the  transportation  of  goods,  that  is, 
they  are  the  means  by  which  goods  are  transported 
from  one  place  to  another;  yet  no  one  would  say 
that  a  railroad  or  a  steamboat  was  nothing  but  a 
sign,  or  a  ticket,  or  an  order.  In  the  same  sense, 
then,  is  money  a  means  by  which  a  purchaser  ac- 
quires title  to  property.  If  asked  the  question,  how 
he  acquired  a  certain  commodity  ?  the  purchaser 
would  answer,  by  means  of  money  ;  and  while  money 
is  but  an  instrument  or  a  tool  it  is  nevertheless  a 
commodity  having  in  and  of  itself  exchangeable 
value.  A  sale  and  purchase  of  goods  for  money  is 
really  an  exchange  of  the  goods  for  money  ;  as  much 
so  as  an  exchange  of  a  certain  quantity  of  cloth  for 
a  certain  number  of  shoes.  And  this  is  what  the 
authors  above  mentioned  really  mean,  as  will  appear 
from  the  following  quotations  from  their  respective 
works.  Adam  Smith : 

"  But,  when  barter  ceases,  and  money  has  become  the 
common  instrument  of  commerce,  every  particular  com- 
modity is  more  frequently  exchanged  for  money  than  for 
any  other  commodity.  The  butcher  seldom  carries  his 
beef  or  his  mutton  to  the  baker  or  the  brewer,  in  order 
to  exchange  them  for  bread  or  for  beer;  but  he  carries 
them  to  the  market,  where  he  exchanges  them  for  money, 
and  afterwards  exchanges  that  money  for  bread  and  for 
beer." 

J.  S.  Mill: 

"  People  are  not  usually  said  to  buy  or  sell  money. 
1  Bk.  I.,  chap.  v. 


WHAT   MONEY   IS  19 

This,  however,  is  merely  an  accident  of  language.  In 
point  of  fact,  money  is  bought  and  sold  like  other  things 
whenever  other  things  are  bought  and  sold  for  money. 
Whoever  sells  corn  or  tallow,  or  cotton,  buys  money. 
Whoever  buys  bread,  or  wine  or  clothes,  sells  money  to 
the  dealer  of  those  articles."  ' 

Bonamy  Price  comes  nearer  to  a  correct  expres- 
sion of  the  fact  than  either  of  the  others,  for  he 
shows  that  the  exchange  is  really  for  the  precious 
metals,  that  is,  the  metal  contained  in  the  coin  is 
exchanged.  However,  the  other  authors,  un- 
doubtedly, by  "  money  "  mean  the  precious  metal 
contained  in  the  money.  Bonamy  Price  says: 

"  From  this  fact  it  necessarily  follows  that  to  sell  prop- 
erty and  to  receive  in  the  place  of  it  golden  coins,  money, 
is  no  increase  of  riches.  It  is  an  exchange  of  two  equal 
quantities  of  wealth,  of  a  precious  metal  for  some  other 
article.  In  the  estimation  of  the  two  parties  to  a  pur- 
chase, the  coin  is  worth  the  property,  and  the  property  the 
coin;  and  that  is  the  whole  of  the  matter." 

The  common  definition  of  money  is  that  it  is  a 
medium  of  exchange.  This  definition,  however,  is 
altogether  too  narrow.  Prof.  F.  A.  Walker,  in  his 
work  entitled  Money,  Trade,  and  Industry,  p.  4,  says, 
that  this  "  term  is  somewhat  vague  for  exact  defini- 
tion, yet,  as  this  phrase  is  commonly  understood,  it 
is  correct."  Unfortunately,  he  does  not  explain 
how  the  phrase  is  commonly  understood,  and  we 
are  as  much  in  the  dark  as  ever.  Money  facilitates 

'Bk.  III.,  chap.  viii.  2P.  6. 


20         NATURE,  USES,  AND   VALUE   OF   MONEY 

the  production  and  the  manufacture  of  commodities, 
as  well  as  their  exchange ;  and  it  also  facilitates  the 
maintenance  of  government,  and  the  administration 
of  justice.  The  word  trade  covers  all  commerce, 
production,  manufacture,  and  exchange  of  commo- 
dities. Production  and  manufacture  require  labor, 
materials,  machinery,  etc.  So  far  as  these  cannot 
be  obtained  by  means  of  credit,  they  must  be  pro- 
cured by  means  of  money,  or  else  resort  must  be 
had  to  the  inconvenience  of  barter.  How  much 
superior  and  more  convenient  the  use  of  money  is 
for  the  purposes  of  the  exchange  of  commodities  is 
sufficiently  explained  in  the  history  of  money  in 
the  first  chapter.  Money,  therefore,  facilitates 
trade. 

Every  organized  government  requires  money. 
Armies  and  navies  must  be  created  and  maintained. 
Officials  must  be  paid,  and  all  the  vast  machinery 
of  government  kept  in  motion.  All  these  require 
immense  supplies  and  materials,  and  as  it  is  imprac- 
ticable for  the  government  to  levy  and  collect  these 
supplies  and  material  from  the  people  in  kind  or 
produce,  resort  must  be  had  to  money,  consequently, 
we  find  that  government  levies,  assesses,  and  collects 
its  revenues  in  money,  and  with  the  money  pur- 
chases all  its  needed  supplies,  materials,  and  main- 
tains its  army,  navy,  officials,  etc.,  so  that  money 
facilitates,  and  greatly  facilitates,  the  maintenance 
of  government.  It  is  hard  to  conceive  how  justice 
could  be  administered  in  any  country  like  ours  with- 
out the  use  of  money.  Its  fines,  penalties,  judg- 
ments, and  decrees  are  fixed  and  determined  in 


WHAT    MONEY   IS  21 

terms  of  money,  and  must  also  be  paid  in  money. 
Even  in  cases  where  there  is  a  recovery  of  specific 
property,  the  decrees  usually  provide  for  damages 
and  costs,  and  these  are  expressed  in  terms  of 
money,  and  it  would  really  be  most  difficult  to  ex- 
press the  amount  of  such  damages  and  costs,  in  any 
other  way. 

§  5.  In  the  order  above  stated  the  first  function 
of  money  is  an  instrument  for  the  satisfaction  and 
discharge  of  liabilities.  Liabilities  include  debts, 
judgments,  decrees,  fines  and  penalties  of  courts  of 
justice,  taxes,  claims  arising  out  of  decedent's  es- 
tates, damages,  etc.  Generally,  all  these  demands 
may  be  discharged  by  the  payment  of  money. 

The  second  function  of  money  is  as  a  common 
consideration  to  support  contracts.  It  is  not  the 
only  consideration  which  may  be  used  for  that  pur- 
pose, but  it  is  universally  a  sufficient  consideration 
to  support  a  contract,  and  this  consideration  relates 
not  only  to  what  are  called  cash  transactions  but  to 
time  contracts  where  the  consideration  is  not  to  be 
paid  until  some  future  time.  There  is,  however, 
little  distinction  between  a  so-called  cash  transaction 
and  a  time  contract.  A  purchaser  goes  into  a  store 
to  buy  a  certain  article;  he  inquires  of  the  merchant 
the  price;  the  merchant  informs  him,  and  the  buyer 
says  ' '  I  will  take  it. "  This  constitutes  the  contract, 
and  from  that  instant  the  buyer  is  entitled  to  the 
article,  and  the  merchant  is  entitled  to  the  con- 
sideration, the  amount  of  which  is  the  agreed  price, 
so  that  all  considerations  are  paid  after  or  subse- 
quent to  the  contracting  of  the  liability,  and  it 


22         NATURE,   USES,  AND   VALUE    OF    MONEY 

makes  no  difference  in  principle  whether  payment 
of  the  consideration  is  deferred  for  but  an  instant, 
or  for  years. 

The  third  and  last  function  in  the  order  named  is 
that  money  serves  as  a  measure,  in  terms  of  which 
the  prices  of  commodities  and  the  extent  and  quan- 
tity of  liabilities  are  expressed.  This  measure  is 
usually  called  the  measure  of  value.  The  sense  in 
which  the  word  "  measure  "  is  here  used  is  that  of 
an  instrument  by  which  things  are  measured,  as, 
for  instance,  a  yardstick.  Now,  money  was  never 
adopted  as  such  a  measure  by  virtue  of  any  positive 
law  or  legislation,  but  was  adopted  and  used  as  such 
a  measure  by  the  common  consent  of  the  commercial 
world ;  and,  since  liabilities  are  discharged  by  the 
payment  of  money,  and  the  consideration  for  the 
purchase  of  commodities  is  usually  expressed  in 
money,  it  is  but  natural  that  the  prices  of  commodi- 
ties should  be  expressed  in  terms  of  money.  The 
same  authority  which  adopted  the  commodity  money 
as  a  measure  of  value,  could  adopt  any  other  com- 
modity for  that  purpose;  nor  is  it  necessary  that 
actual  money,  or  coin,  should  be  used  for  that  pur- 
pose. As  far  back  as  the  twelfth  century  the  Bank 
of  Venice  originated;  it  was  really  a  government 
institution.  This  bank  was  followed  by  the  Bank 
of  Genoa,  and  in  later  times  by  the  Bank  of  Ham- 
burg. The  mode  of  doing  business  by  these  banks 
was  to  receive  the  coins  which  the  depositor  de- 
posited, by  actual  weight,  and  give  the  depositor 
credit  on  the  books  of  the  bank  for  the  amount. 
This  credit  could  be  transferred  on  the  books  of  the 


WHAT   MONEY   IS  23 

bank  by  the  depositor  to  any  other  person.  '  The 
bank  credits  were  divisible  to  every  desirable  degree, 
and  they  could  be  transferred  with  a  readiness, 
speed,  and  safety,  beyond  all  comparison  superior 
to  any  mode  of  paying  in  coin."  The  amount  of 
the  credits,  however,  given  to  a  depositor  on  the 
books  of  the  bank  was  not  expressed  in  terms  of  any 
denomination  of  coin  in  actual  existence,  but  in  the 
terms  of  an  ideal  money,  that  is,  of  an  imaginary 
coin  of  a  given  weight  and  fineness,  hence  this 
money  was  sometimes  called  bank  money,  but  most 
usually,  money  of  account,  because  it  existed  only 
in  the  accounts  of  the  bank.  This  money  of  ac- 
count became  by  custom  the  money  in  which  all 
notes  and  bills  of  exchange  were  made  payable,  and 
in  which  all  accounts  between  merchants  were  kept, 
and  consequently  it  became  and  was  the  common 
measure  of  values,  in  terms  of  which  the  prices  of 
commodities  were  expressed.  From  the  reign  of 
Charles  the  Second  there  was  no  coin  in  England 
of  the  denomination  of  a  pound  coined,  and  those 
theretofore  coined  soon  disappeared  from  circula- 
tion ;  yet,  notwithstanding  the  fact  that  there  was 
no  such  coin  in  existence,  the  pound,  sometimes 
called  the  pound  of  account,  but  generally  the 
pound  sterling,  and  which  had  become  an  ideal  coin 
or  money,  continued  for  many  years  the  unit  of  the 
British  currency,  and,  at  least  up  to  a  comparatively 
recent  period,  if  not  down  to  the  present  day,  notes 
and  bills  are  expressed  in  pounds,  shillings,  and 
pence;  accounts  were  kept  in? the  same  money,  and 
prices  were  expressed  in  terms  of  \it.  The  pound 


24         NATURE,  USES,  AND    VALUE    OF   MONEY 

originally,  and  while  it  was  in  existence,  was  a  silver 
coin,  and  up  to  1816  there  was  no  coin  in  circulation 
corresponding  to  it.  In  1816  the  coinage  of  sov- 
ereigns began.  The  sovereign  is  a  gold  coin,  which, 
when  minted,  is  of  the  exact  value  of  the  pound 
sterling.  Since  1816  the  pound  sterling  has  been 
represented  in  the  coinage  by  the  sovereign,  and, 
even  though  accounts,  etc.,  are  kept  in  pounds, 
shillings,  and  pence,  the  pound,  practically,  means 
a  sovereign. 

Many  persons  seem  to  have  an  impression  that 
the  measure  by  which  any  commodity  is  measured 
makes  or  fixes  the  quantity  of  that  commodity,  and 
that  money  in  measuring  or  estimating  the  prices  of 
commodities  makes  and  fixes  such  prices;  but  this 
is  a  mistake;  neither  of  these  measures  have  any 
such  effect.  A  measurement  of  a  commodity  merely 
determines  the  number  of  times  a  given  measure  is 
contained  in  the  commodity;  and  so  when  the  price 
of  a  commodity  is  measured  by  money,  dollars,  for 
instance,  the  measurement  merely  determines  how 
many  times  the  value  of  a  dollar  is  contained  in  the 
value  of  the  commodity  measured,  and  the  number 
of  times  the  value  of  the  dollar  is  contained  in  the 
value  of  the  commodity  expresses  the  price  of  it; 
as,  for  example,  in  so  measuring  the  price  of  a  cer- 
tain commodity,  it  is  found  that  the  value  of  a 
dollar  is  contained  ten  times  in  the  value  of  the 
commodity,  the  price  is  then  ten  dollars.  The  buyer 
and  seller  may  not  at  first  agree  upon  the  number 
of  times  a  dollar  is  contained  in  the  value  of  the 
commodity.  The  seller  is  likely  to  consider  that 


WHAT    MONEY   IS  2$ 

the  value  of  the  dollar  is  contained  more  times  in  the 
value  of  the  commodity  which  is  the  subject  of 
negotiations  between  him  and  the  buyer  than  the 
buyer  admits,  but,  if  they  come  together  and  agree 
to  a  sale  and  purchase,  they  must  agree  upon  the 
number  of  times  the  dollar  is  contained  in  the  value 
of  the  commodity,  and  this  number  of  times  that 
the  value  of  the  dollar  is  so  agreed  to  be  contained 
in  the  value  of  the  commodity  is  the  price  agreed 
upon.  But  there  are  important  distinctions  to  be 
made  between  the  measurement  of  the  length, 
weight,  or  space  of  a  given  commodity  and  the 
measurement  of  the  price  of  a  commodity  with 
money.  When  the  length  or  weight  of  anything  is 
measured,  as,  for  instance,  the  measurement  of  a 
piece  of  cloth  with  a  yardstick,  the  measurement 
of  the  thing  or  the  piece  of  cloth  measured,  so 
long  as  the  thing  measured,  as  the  piece  of  cloth, 
for  instance,  preserves  its  quantity  or  length,  will, 
for  all  persons,  times,  and  places,  be  the  same. 
Not  so  with  measurements  of  the  value  of  commo- 
dities with  money.  Even  if  the  commodity  so 
measured  in  the  value  of  money  retain  its  physical 
identity,  or  its  quantity,  still  the  ascertainment  of 
its  value  by  such  measurement  or  its  price  as  de- 
clared by  such  measurement  does  not  remain  the 
same  with  all  persons  and  at  all  times  and  places. 
The  operation  of  measuring  the  value  or  price  of  an 
article  with  money  is  purely  a  mental  process;  there 
is  no  physical  application  of  the  measure  to  the 
aritcle  measured,  as  there  is  in  the  case  of  the  meas- 
urement of  a  piece  of  cloth  with  a  yardstick.  The 


26         NATURE,   USES,  AND   VALUE    OF   MONEY 

causes  which  interfere  with  the  stability  of  the 
measurement  of  the  value  of  a  commodity  may  be 
summed  up  as  follows: 

(a)  As  every  instrument  of  measure  for  the  meas- 
urement of  commodities  has  its  standard  for  its  ex- 
tent, or  dimensions,  so  the  instrument  of  the  measure 
of  the  values  or  prices  of  commodities  (the  value  of 
the  dollar)  also  has  its  standard  for  the  extent  or 
quantity  of  its  value.     This  standard  is  the  value  of 
some  commodity  selected  and  used  for  that  purpose ; 
the  result  of  this  is  that,   ultimately,  all  prices  of 
commodities  are  measured  in  the  value  of  this  stand- 
ard.     Now,  this  standard,  being  a  commodity,  may, 
for  reasons  appertaining  to  itself,  fall  or  rise  in  value. 
If  the  standard  rise  in  value  the  prices  of  commodities 
will  be  expressed  in  terms  of  less  money,  provided 
the  instrument  of  measure,  the  dollar,  is  up  to  the 
standard,  or  on  a  par  with  it;  on  the  other  hand,  if 
the  standard  fall  in  value,  the  prices  of  commodities 
will  rise,  providing,  as  already  said,  the  instrument 
of  measure  is  on  a  par  with  the  standard. 

(b)  Again  the  instrument  of  measure  of  values, 
the   dollar,    in   use   may  be  depreciated   below  the 
value  of  the  standard  ;  if  so,  then,  the  prices  of  com- 
modities will  be  increased  to  at  least  something  near 
the    percentage    of   such  depreciation,  that  is,  the 
value  of  the  dollar  in  use,  having  diminished — the 
yardstick  having  been  shortened  (if  I  may  be  allowed 
to   use   such   a  comparison) — the  number  of  times 
which  it  will  be  contained  in  the  value  of  the  com- 
modity measured  will  be  increased  in  proportion  to 
the  depreciation.     On  the  other  hand,  if  the  value 


WHAT    MONEY    IS  2/ 

of  the  instrument  of  measure  be  appreciated  above 
the  standard,  the  instrument  of  measure  will  be  con- 
tained in  the  value  of  the  commodity  a  less  number 
of  times  in  proportion  to  the  appreciation,  and  the 
price  of  the  commodity  will  apparently  fall.  In 
these  ways  prices  may  rise  or  fall  on  account  of  the 
fall  or  rise  in  the  value  of  money,  or  of  the  standard. 
The  causes  which  cause  a  fall  or  rise  in  the  price  of 
a  commodity  for  reasons  relating  wholly  to  itself  are 
as  follows : 

(c)  The  price  of  a  commodity  may  be  more  or 
less  according  to  its  location ;  for  instance,  the  price 
will  naturally  be  less  at  its  place  of  production  than 
it  will  be  at  a  place  distant  therefrom. 

(d)  The  price  of  a  commodity  may  rise  in  conse- 
quence of  an  increased  demand  for  the  commodity, 
or  the  price  may  fall  in  consequence  of  a  decreased 
demand,    the  supply  in    either  case  remaining  the 
same,  or  not  increasing  or  diminishing  in  the  same 
proportion   as   the  increase  or  decrease  of  the  de- 
mand. 

(e)  The  price  of  a  commodity  may  rise  on  ac- 
count of  a  diminution  of  the  supply  of  the  commo- 
dity, or  the  price  may  fall  on  account  of  an  increase 
of  the  supply,  the  demand  in  either  case  remaining 
the  same,    or   not   decreasing  or  increasing  in  the 
same   proportion   as  the  diminution  or  increase  of 
the  supply. 

One  word  of  caution  before  closing  on  this  subject 
of  prices.  Many  persons  are  disposed  to  attribute 
every  fall  and  every  rise  in  prices  of  commodities  to 
a  rise  or  fall  in  the  value  of  money,  or  to  a  rise  or 


28         NATURE,  USES,  AND   VALUE   OF   MONEY 

fall  in  the  value  of  the  commodity  selected  as  the 
standard  of  value;  but  this  opinion  is  very  far  from 
the  truth,  for  prices  are  very  seldom  influenced,  and 
only  at  long  intervals  by  variations  in  the  value  of 
money,  or  in  the  standard  of  value;  while  the  prices 
of  commodities  vary  continuously  from  day  to  day, 
on  account  of  causes  relating  entirely  to  the  com- 
modities themselves.  Prices  are  also  influenced  by 
the  state  of  credit,  monopoly,  competition,  taxes, 
or  custom  duties. 

The  extent  and  quantity  of  liabilities  are  also 
measured  and  expressed  in  terms  of  money.  The 
proportion  of  the  burden  imposed  upon  the  citizen 
for  the  maintenance  of  government,  taxes,  etc.,  are 
all  levied  and  assessed  in  terms  of  money.  Damages 
for  the  non-performance  of  contracts,  and  for  in- 
juries to  the  person  or  to  property,  fines  and  penal- 
ties, and  all  dues  public  and  private  included  in  the 
term  liabilities,  are  assessed,  liquidated,  and  imposed 
in  terms  of  money. 


CHAPTER  III 

SOME  OBSERVATIONS  ON  THE  QUALITIES  ANNEXED 
TO   MONEY 

§  I.  GOLD  money,  or  coin,  by  virtue  of  the  value 
of  the  metal  contained  in  it,  stands  on  its  own  basis; 
its  value  in  exchange  depends  solely  on  the  value  of 
the  metal  contained  in  it.  It  requires  no  redemp- 
tion, and  no  support  from  any  outside  source.  It 
is  therefore  self-sustaining.  For  this  reason  it  may 
well  be  called  primary  money,  though  it  is  some- 
times called  standard  money,  but  this  expression  is 
likely  to  breed  confusion  in  the  mind,  because 
standard  money  is  coin  of  the  standard  weight  and 
fineness  as  provided  by  law.  Our  silver  dollars  are 
standard  money  in  this  sense.  As  all  other  kinds  of 
money  are  eventually  redeemable  in  gold,  gold 
money  is  also  called  redemption  money. 

There  has  always  been  a  great  deal  of  discussion 
as  to  whether  paper  money  so-called  is  really  money. 
Strictly  speaking,  it  is  not  money.  It  is  not  an 
original,  self-sustaining  thing.  It  is  a  substitute  for, 
and  a  representative  of,  coin,  or  metallic  money. 
It  says  to  the  seller  of  goods  or  to  the  creditor, 
"  Accept  me  in  payment,  and  through  me  you  can 
reach  and  obtain  my  principal,  coin,  or  metallic 
money."  It  is  the  expectation  and  belief  that  it 

29 


30         NATURE,   USES,  AND   VALUE   OF   MONEY 

will  at  some  time  or  another  be  paid  or  redeemed  in 
the  primary  money,  which  gives  it  its  value  in  ex- 
change. It  is,  therefore,  a  mere  substitute  for  real 
money.  However,  the  name  of  paper  money  has 
become  so  customary,  and  it  is  so  universally  con- 
sidered and  treated  as  money,  and  it  is  so  generally 
accepted  as,  and  performs  the  functions  of,  money, 
that  no  good  can  now  be  accomplished  by  refusing 
it  the  name  or  title  of  "  money."  But  it  should  be 
distinguished  from  primary  money  in  order  to  avoid 
confusion  of  thought.  This  can  readily  be  done  by 
calling  paper  money  what  it  really  is,  "  secondary 
money." 

United  States  notes,  commonly  called  "  Green- 
backs," and  United  States  Treasury  notes  of  1890 
are  redeemable  in  gold.  National  bank  notes  are  in 
the  first  instance  redeemable  in  lawful  money.  This 
term  "  lawful  money  "  is  understood  to  apply  to 
every  form  of  money  which  is  endowed  with  the 
legal-tender  quality ;  since  all  these  moneys  which 
are  endowed  with  the  legal-tender  quality  are  either 
gold  money,  which  is  not  required  to  be  redeemed, 
or  other  forms  of  money  which  are  redeemable  in 
gold,  it  follows  that  in  the  end  national  bank  notes 
are  redeemable  in  gold. 

Paper  money  is  of  two  kinds,  convertible  and 
inconvertible.  A  convertible  note  is  one  that  is 
payable  or  redeemable  in  coin  on  demand.  An  in- 
convertible note  is  one  that  is  not  payable,  or  will 
not  be  paid  or  redeemed,  in  coin  on  demand,  and 
the  time  of  payment  of  which  is  indefinite.  It  is  to 
be  borne  in  mind  that  the  convertibility  or  incon- 


THE  QUALITIES  ANNEXED  TO  MONEY    31 

vertibility  of  paper  money  does  not  by  any  means 
depend  wholly  upon  the  terms  of  the  note,  that  is, 
whether  it  is  on  its  face  made  payable  on  demand, 
or  whether  it  does  not  specify  any  time  for  payment ; 
because  it  is  the  fact,  whether  the  note  will  or  will 
not  be  paid  or  redeemed  in  coin  on  demand,  which 
determines  the  convertibility  or  the  inconvertibility 
of  the  note.  Thus  a  note,  which,  on  its  face,  is  in- 
convertible, that  is,  no  time  is  specified  for  its  pay- 
ment, may  actually,  and  in  fact,  be  payable  and 
redeemable  on  demand,  in  which  case  the  note  would 
be  convertible.  On  the  other  hand,  paper  money 
notes  may  be  made  on  their  face  convertible,  that 
is,  it  may  be  specified  that  they  are  payable  in  coin 
on  demand,  and  yet,  if  they  are  in  fact  not  redeemed 
or  paid  on  demand,  then  they  become  inconvertible 
notes. 

In  either  case,  of  convertible  or  inconvertible 
notes,  it  is  the  promise  to  pay  which  gives  value  to 
the  note.  If  the  promise  to  pay  is  promptly  kept 
and  payment  be  made  on  demand,  then  such  con- 
vertible notes  make  a  good  and  satisfactory  repre- 
sentative, or  secondary  money.  Our  paper  money 
is  now  of  this  character.  If  there  is  a  belief  that 
inconvertible  notes  will  at  some  time,  although  the 
time  be  indefinite,  be  paid  or  redeemed  in  coin,  the 
notes  will  remain  in  use  as  money,  but  their  value 
will  depend  wholly  upon  the  degree  of  faith  or  be- 
lief in  their  ultimate  redemption  in  coin.  If  this 
faith  is  generally  strong,  then  the  value  of  the  notes 
will  be  greater ;  if  the  faith  weakens,  then  the  value 
of  the  money  falls ;  and  if  all  faith  is  lost,  then  the 


32         NATURE,  USES,  AND   VALUE   OF   MONEY 

paper  money  notes  have  no  value  at  all.  Hence  it 
is  that  excessive  issues  of  inconvertible  notes  are  so 
dangerous  and  work  so  much  mischief;  because  the 
greater  the  amount  issued,  the  less  the  faith  in  the 
ability  of  the  issuer  to  pay.  So  much  has  been  said 
and  written  of  late  about  the  mischiefs  of  inconver- 
tible paper,  that  nothing  more  need  now  be  said 
concerning  this  sort  of  paper  money. 

Our  silver  currency,  for  reasons  given  in  the  first 
chapter,  is  not  primary  money.  It  is  redeemable  in 
gold  the  same  as  paper  money  is.  Its  value  does 
not  depend  solely  upon  the  value  of  the  metal  con- 
tained in  the  coin,  and  hence  the  silver  money  is 
not  self-sustaining  but  rests  upon  gold.  It  is  also 
a  sort  of  secondary  money.  Gold  is,  therefore,  the 
basis  of  all  our  currency. 

§  2.  The  Legal-Tender  Quality. — Gold  coin  is  a 
legal-tender  for  its  nominal  value,  when  not  below 
the  limit  of  tolerance  in  weight;  when  below  that 
limit,  it  is  a  legal-tender  in  proportion  to  its  weight. 
The  standard  weight  of  gold  coins  (^  pure  gold)  is 
as  follows:  the  one-dollar  piece,  25^  grains;  the 
quarter  eagle,  or  two-and-a-half-dollar  piece,  64^ 
grains;  three-dollar  piece,  77^  grains;  the  half- 
eagle,  or  five-dollar  piece,  129  grains;  the  eagle,  or 
ten-dollar  piece,  258  grains;  and  of  the  double-eagle 
or  twenty-dollar  piece,  516  grains.  The  limit  of 
tolerance  in  the  double-eagle  and  the  eagle  is  one 
half  of  a  grain;  in  the  half-eagle,  the  three-dollar 
piece,  the  quarter  eagle  and  the  one-dollar  piece, 
one  fourth  of  a  grain ;  when  any  of  these  coins  shall 
be  reduced  in  weight  below  the  limit  of  tolerance, 


THE   QUALITIES  ANNEXED   TO   MONEY          33 

they  are  only  legal  tender  at  a  valuation  in  propor- 
tion to  their  actual  weight. 

Standard  silver  dollars  and  United  States  Treasury 
notes  of  1890  are  a  legal  tender  for  all  debts  public 
and  private,  except  where  otherwise  stipulated  in 
the  contract.  Fractional  silver  currency  is  a  legal 
tender  to  the  extent  of  ten  dollars;  minor  coins  to 
the  extent  of  twenty-five  cents. 

United  States  notes  are  a  legal  tender  for  all  debts 
public  and  private,  except  duties  on  imports,  and 
interest  on  the  public  debt. 

Silver  certificates  and  national  bank  notes  are  not 
legal  tender,  but  silver  certificates  are  receivable  for 
all  public  dues;  and  national  bank  notes  are  receiv- 
able for  all  public  dues  except  duties  on  imports, 
and  they  may  be  paid  out  for  all  public  dues,  except 
interest  on  the  public  debt. 

§  3.  Prices  and  Purchasing  Poiver. — Price  is  the 
value  of  other  commodities  in  relation  to  gold  or 
silver,  or,  as  it  is  sometimes  expressed,  price  is  the 
money  value  of  commodities,  or  the  value  of  the 
commodity  expressed  in  terms  of  money.  Gold 
and  silver  have  their  market  price  like  other  com- 
modities, but  the  value  of  gold  or  silver  or  of  money 
in  relation  to  other  commodities  is  called  its  pur- 
chasing power.  All  commodities,  however,  have 
their  purchasing  power.  Gold  is  a  universal  pur- 
chasing power.  Silver  and  other  moneys  have  not 
a  universal  purchasing  power,  because  these  moneys 
do  not  pass  current  at  their  mint  ratio  outside  of  the 
country  in  which  they  are  issuedo 


CHAPTER  IV 

OF  THE  STANDARD  OF  THE  MEASURE  OF  VALUE, 
COMMONLY  CALLED  THE  STANDARD  OF  VALUE 

§  i.  THE  importance  of  the  subject  of  this  chap- 
ter requires  some  extended  discussion. 

A  clear  understanding  of  what  is  meant  by  the  ex- 
pression "the  standard  of  the  measure  of  value,"  or 
by  the  expression  "  the  standard  of  value  "  is  essen- 
tial, and  as  the  word  "  standard  "  is  connected  with 
money  in  so  many  different  senses,  it  is  thought  that 
an  explanation  of  standards  so  connected  with 
money  which  are  not  the  standard  of  the  measure 
of  value,  will  materially  assist  in  a  clearer  under- 
standing of  what  is  meant  by  that  expression.  It  is 
not  here  meant  by  the  expression  "  the  standard  of 
the  measure  of  value  " : 

(1)  Primary  or  redemption  money  which  many 
authors  call  "  standard  money."     The  expression 
"  standard  money,"  when  so  used,  is  merely  to  dis- 
tinguish this  so-called  standard  money  from  token 
money  or  paper  money,  etc. 

(2)  Nor  standard  money  in  the  same  sense  that 
the  coin  is  of  the  weight  and  fineness  fixed  by  law. 

(3)  Nor  the  standard  weight  of  coin. 

(4)  Nor  the  standard  fineness  of  coin. 

(5)  Nor  the  "  units  "  or  the  "  unit  of  value  " 

34 


STANDARD    OF   THE    MEASURE   OF   VALUE       35 

mentioned  in  our  coinage  laws.  These  units  are 
oftentimes  called  standard  units  of  value,  but  they 
are  merely  "  units  "  and  "  units  of  value  "  in  the 
coinage,  for  the  purpose  of  enumeration  and  the 
starting-point  from  which  to  count  or  distinguish 
the  different  coins,  or  the  different  denominations 
of  coins  in  the  coinage,  as,  for  instance,  the  piece  of 
gold  denominated  a  dollar ;  denominating  or  naming 
this  piece  of  gold  is  a  certificate  that  there  are  a  cer- 
tain number  of  grains  of  gold  of  a  certain  fineness 
contained  in  this  piece  of  gold.  Now,  this  piece  of 
gold  called  a  dollar  is  the  unit  of  coinage,  and  all 
other  coins  must  be  either  a  fraction  or  fractions,  or 
multiples  of  the  dollar,  that  is,  the  two-and-one-half 
dollar  gold  piece,  is  two  and  one  half  times  heavier 
than  the  dollar,  and  contains  two  and  one  half  times 
more  gold  than  the  dollar;  the  three-dollar  gold 
piece  is  three  times  heavier  than  the  dollar,  and 
contains  three  times  as  much  gold ;  the  half-eagle, 
or  five-dollar  gold  piece,  is  five  times  heavier  than 
the  dollar  piece,  and  contains  five  times  more  gold ; 
the  eagle,  or  ten-dollar  gold  piece,  is  ten  times  heav- 
ier than  the  dollar,  and  contains  ten  times  as  much 
gold,  and  so  on. 

(6)  Nor  the  sense  in  which  the  expression 
"  standard  of  value  "  is  used  by  some  writers, 
namely,  that  it  is  a  standard  of  deferred  payments. 
It  is  difficult  to  understand  how  the  standard  of 
value  is  a  standard  of  deferred  payments.  Deferred 
payments  are  debts,  and  the  only  kinds  of  standard 
I  can  imagine  of  debts  is  the  character  of  the  secur- 
ity for  the  debt,  and  the  solvency  of  the  debtor. 


36        NATURE,  USES,  AND   VALUE   OF   MONEY 

There  might  be  a  particular  kind  of  security  which 
might  possibly  be  regarded  as  a  standard,  though  it 
is  never  so  termed,  and  the  standard  of  solvency  of 
the  debtor  is  nothing  more  than  his  ability  to  pay. 
Possibly  a  debtor  of  unquestioned  ability  to  pay 
might  be  regarded  as  a  standard  for  debts,  but  the 
word  standard  is  never  so  applied,  and  even  if  it 
were  it  would  not  be  a  standard  of  value. 

Again,  if  by  the  expression  "  standard  of  deferred 
payments  "  is  meant  a  standard  for  the  payment  of 
deferred  debts,  that  never  could  be  a  standard  of  the 
measure  of  values,  because  a  standard  of  the  measure 
of  value  is  the  standard  according  to  which  values  of 
commodities  are  measured.  Money  is  not  the 
standard  for  the  payment  of  deferred  debts,  but  it 
is  that  in  which  deferred  debts  are  usually  made 
payable;  but  that  does  not  make  money  the  stand- 
ard of  the  debt  any  more  than  a  contract  which 
stipulated  that  the  deferred  debt  should  be  payable 
in  any  other  commodity  would  make  such  com- 
modity the  standard  for  the  payment  of  the  debt. 
The  deferred  payments  under  any  contract,  whether 
payable,  by  the  terms  of  the  contract,  in  money  or 
in  any  other  commodity,  goes  to  and  relates  entirely 
to  the  consideration  of  the  contract,  and  the  con- 
sideration of  a  contract  is  not  the  standard. 

§  2.  What  is  here  meant  by  the  expression  "  the 
standard  of  the  measure  of  value,"  or  "  the  standard 
of  value, ' '  is  that  commodity  which  has  been  selected 
by  the  commercial  world  to  serve  that  purpose,  and 
by  which  all  the  different  kinds  of  money  in  use  are 
measured,  and  which  is,  consequently,  that  commo- 


STANDARD   OF  THE   MEASURE   OF  VALUE       37 

dity  to  which  the  prices  of  other  commodities  are 
ultimately  referred,  as,  for  example,  gold  is  the 
standard  of  the  measure  of  value,  a  segregation  or 
the  separation  of  a  certain  fixed  and  definite  portion 
of  that  metal  into  a  piece  called  a  dollar  is  the  in- 
strument of  measure  of  values,  and  its  value  is  deter- 
mined by  the  quantity  of  gold  in  the  piece.  Paper 
money  and  silver  money  are  rated  in  gold,  so  that 
whether  the  dollar  which  is  the  instrument  used  as 
the  measure  of  value,  be  of  gold,  paper,  or  silver, 
they  are  all  rated  in  gold,  or  rather  their  value  is 
rated  in  the  value  of  gold,  so  that  ultimately  the 
prices  of  commodities  are  rated  in  the  value  of  gold. 
The  commodity  gold  is,  at  present,  that  standard 
of  the  measure  of  value  in  the  principal  commercial 
nations  of  the  world,  and  it  was  adopted  as  such  by 
the  common  consent  of  the  commercial  world,  and 
not  by  virtue  of  any  legislative  authority.  Both  of 
these  propositions  are  established  by  an  abundance 
of  facts  and  by  experience. 

"  In  the  progress  of  industry,  commercial  nations  have 
found  it  convenient  to  coin  several  different  metals  into 
money;  gold  for  larger  payments,  silver  for  purchases  of 
moderate  value,  and  copper,  or  some  other  coarse  metal 
for  those  of  still  smaller  consideration.  They  have  al- 
ways, however,  considered  one  of  those  metals  as  more 
peculiarly  the  measure  of  value  than  any  of  the  other  two; 
and  this  preference  seems  generally  to  have  been  given 
to  the  metal  which  they  happened  first  to  make  use 
of  as  the  instrument  of  commerce.  Having  once  began 
to  use  it  as  their  standard,  which  they  must  have  done 
when  they  had  no  other  money,  they  have  generally  con- 


38    NATURE,  USES,  AND  VALUE  OF  MONEY 

tinued  to  do  so  even  when  the  necessity  was  not  the 
same. 

;'  The  Romans  are  said  to  have  had  nothing  but  cop- 
per money  till  within  five  years  (Pliny,  lib.  xxxiii.,  cap. 
3)  before  the  first  Punic  war,  when  they  first  began  to 
coin  silver.  Copper,  therefore,  appears  to  have  con- 
tinued always  the  measure  of  value  in  that  republic.  .  .  . 

'  The  northern  nations  who  established  themselves 
upon  the  ruins  of  the  Roman  Empire  seem  to  have  had 
silver  money  from  the  first  beginning  of  their  settlements, 
and  not  to  have  known  either  gold  or  copper  coins  for 
several  ages  thereafter.  There  were  silver  coins  in  Eng- 
land in  the  time  of  the  Saxons;  but  there  was  little  gold 
coined  till  the  time  of  Edward  III.,  nor  any  copper  till 
that  of  James  I.,  of  Great  Britain.  In  England,  there- 
fore, and  for  the  same  reason,  I  believe,  in  all  other 
modern  nations  of  Europe,  all  accounts  are  kept,  and 
the  value  of  all  goods  and  of  all  estates  is  generally  com- 
puted in  silver;  and  when  we  mean  to  express  the  amount 
of  a  person's  fortune,  we  seldom  mention  the  number  of 
guineas,  but  the  number  of  pounds  sterling  which  we 
suppose  would  be  given  for  it. 

"  Originally,  in  all  countries,  I  believe,  a  legal  tender 
of  payment  could  be  made  only  in  the  coin  of  that  metal 
which  was  peculiarly  considered  as  the  standard  or 
measure  of  value.  In  England  gold  was  not  considered 
as  a  legal  tender  for  a  long  time  after  it  was  coined  into 
money.  The  proportion  between  the  values  of  gold 
and  silver  money  was  not  fixed  by  any  public  law  or 
proclamation ;  but  was  left  to  be  settled  by  the  market. 
In  this  state  of  things  the  distinction  between 
the  metal  which  was  the  standard  and  that  which  was  not 
the  standard  was  something  more  than  a  nominal  dis- 
tinction. 


STANDARD  OF  THE  MEASURE  OF  VALUE   39 

"  In  process  of  time,  and  as  people  became  gradually 
more  familiar  with  the  use  of  the  different  metals  in  coin, 
and  consequently  better  acquainted  with  the  proportion 
between  their  respective  values,  it  has  in  most  countries, 
I  believe,  been  found  convenient  to  ascertain  this  pro- 
portion, and  to  declare  by  a  public  law  that  a  guinea,  for 
example,  of  such  a  weight  and  fineness  should  exchange 
for  one-and-twenty  shillings,  or  be  a  legal  tender  for  that 
amount.  In  this  state  of  things,  and  during  the  continu- 
ance of  any  one  regulated  proportion  of  this  kind,  the 
distinction  between  the  metal  which  is  the  standard  and 
the  metal  which  is  not  the  standard,  becomes  little  more 
than  a  nominal  distinction. 

"  In  consequence  of  any  change,  however,  in  this 
regulated  proportion,  this  distinction  becomes,  or  at  least 
seems  to  become,  something  more  than  nominal  again. 
If  the  regulated  value  of  a  guinea,  for  example,  was  either 
reduced  to  twenty,  or  raised  to  two-and-twenty  shillings, 
all  accounts  being  kept  and  almost  all  obligations  for 
debt  being  expressed  in  silver  money,  the  greater  part  of 
payments  could  in  either  case  be  made  with  the  same 
quantity  of  silver  money  as  before;  but  would  require 
very  different  quantities  of  gold  money;  a  greater  in  the 
one  case  and  a  smaller  in  the  other.  Silver  would  appear 
to  be  more  invariable  in  its  value  than  gold.  Silver 
would  appear  to  measure  the  value  of  gold,  and  gold 
would  not  appear  to  measure  the  value  of  silver.  The 
value  of  gold  would  seem  to  depend  upon  the  quantity 
of  silver  which  it  would  exchange  for;  and  the  value  of 
silver  would  not  seem  to  depend  upon  the  quantity  of  gold 
which  it  would  exchange  for.  This  difference,  however, 
would  be  altogether  owing  to  the  custom  of  keeping  ac- 
counts, and  of  expressing  the  amount  of  all  great  and 
small  sums  rather  in  silver  than  in  gold  money.  One  of 


40      NATURE,  USES,  AND  VALUE  OF  MONEY 

Mr.  Drummond's  notes  for  five-and-twenty  or  fifty  guineas 
would,  after  an  alteration  of  this  kind,  be  still  payable 
with  five-and-twenty  or  fifty  guineas  in  the  same  manner 
as  before.  It  would,  after  such  an  alteration,  be  payable 
with  the  same  quantity  of  gold  as  before,  but  with  very 
different  quantities  of  silver.  In  the  payment  of  such  a 
note  gold  would  appear  to  be  more  invariable  in  its  value 
than  silver.  Gold  would  appear  to  measure  the  value  of 
silver,  and  silver  would  not  appear  to  measure  the  value 
of  gold.  If  the  custom  of  keeping  accounts,  and  of 
expressing  promissory  notes  and  other  obligations  for 
money  in  this  manner  should  ever  become  general,  gold, 
and  not  silver,  would  be  considered  as  the  metal  which 
was  peculiarly  the  standard  or  measure  of  value."  1 

In  1810  a  committee  of  the  Parliament  of  Great 
Britain,  called  the  Bullion  Committee,  made  a  report 
to  Parliament  on  the  high  price  of  bullion.  In  this 
report  the  committee  say : 

"  In  this  country,  gold  is  itself  the  measure  of  all  ex- 
changeable value,  the  scale  to  which  all  money  prices  are 
referred.  It  is  so,  not  only  by  the  usage  and  commercial 
habits  of  the  country,  but  likewise  by  operation  of  law, 
ever  since  the  act  of  the  i4th  of  his  present  Majesty 
(finally  rendered  perpetual  by  the  act  of  the  39th  year  of 
the  reign),  disallowed  a  legal  tender  in  silver  coin  be- 
yond the  sum  of  25  /." 

Prior  to  this,  Lord  Liverpool,  in  a  treatise  on  the 
coins  of  the  realm,  written  in  1805,  maintained  that 
gold,  by  the  common  consent  of  the  people,  had  be- 

1  Smith,  Wealth  of  Nations,  Bk.  I.,  chap.  v.  Mr.  Smith  wrote 
this  work  about  1776. 


STANDARD   OF  THE   MEASURE   OF  VALUE       4! 

come  a  general  measure  of  value  in  England,  and 
that  gold  coin  had  been  for  near  a  century  prior  to 
the  time  he  wrote  the  principal  measure  of  value. 

Ricardo,  in  his  essay,  The  High  Price  of  Bullion,1 
written  in  1811,  says: 

"  But  before  I  proceed  to  examine  on  these  principles 
the  main  object  of  my  inquiry,  it  is  necessary  that  I 
should  show  what  is  the  standard  measure  of  value  in 
this  country,  and  of  which,  therefore,  our  paper  currency 
ought  to  be  the  representative." 

"  For  many  reasons  given  by  Lord  Liverpool,  it  ap- 
pears, proved  beyond  dispute,  that  gold  coin  has  been  for 
near  a  century  the  principal  measure  of  value;  but  this 
is,  I  think,  to  be  attributed  to  the  inaccurate  determina- 
tions of  the  mint  proportions.  Gold  has  been  valued  too 
high;  no  silver,  therefore,  can  remain  in  circulation 
which  is  of  its  standard  weight." 

Mr.  Jevons  quotes  M.  Cernuschi,  who  in  his  life- 
time claimed  to  be  the  Father  of  Bimetallism,  as 
follows : 

"  The  bimetallism  proposed  by  Newton  was  sanctioned 
by  a  law.  But  after  some  time  the  public  officers,  in 
spite  of  the  law,  began  again  to  take  and  give  in  payment 
pieces  of  gold  at  a  price  superior  to  the  legal  rate;  natur- 
ally the  public  did  likewise  in  their  transactions,  and  it 
is  thus  that  little  by  little  gold  monometallism  was  im- 
planted in  England  in  spite  of  Newton.  The  entirely 
gold  monometallic  law,  proposed  by  Lord  Liverpool  in 
1816,  upon  the  eve  of  the  resumption  of  cash  payments, 
merely  sanctioned  an  old  abuse." 

1  See  his  Works  by  McCulloch,  pp.  270  and  271. 


42         NATURE,  USES,  AND   VALUE   OF   MONEY 

Upon  which  Jevons  comments: 

"  These  characteristic  statements,  in  their  original 
Frencht  at  least  as  clear  as  crystal,  and  almost  sparkling 
as  the  French  language  alone  can  sparkle,  are  true 
enough  as  regards  Locke,  and  Lord  Liverpool,  and  the 
origin  of  our  gold-standard  system."  1 

Dr.  Ad.  Soetbeer,  in  his  work  entitled  Materials 
toward  the  Elucidation  of  the  Economic  Conditions, 
etc.  (see  English  translation  by  Prof.  F.  W.  Taussig 
contained  as  an  appendix  to  the  Report  of  Mr.  Ed- 
ward Atkinson  on  Bimetallism  in  Europe,  in  U.  S. 
Documents,  No.  87,  December,  1887,  p.  599)  says: 

"  In  what  has  preceded  and  in  what  will  follow  we 
use  the  words  '  money  '  and  '  gold  '  indiscriminately. 
This  does  not  really  cause  any  uncertainty  of  meaning, 
since  gold  is  directly  or  indirectly  the  sole  measure  of 
value  in  the  wholesale  trade  of  all  commercial  countries, 
even  though  the  medium  of  exchange  may  consist  of 
silver  coins,  and  accounts  may  be  kept  in  them." 

Dr.  Soetbeer  then  refers  to  a  note  at  the  bottom 
of  the  page,  which  note  is  as  follows: 

"  This  is  clearly  expressed  in  the  following  remarks 
made  by  an  English  author:'  '  There  is  no  denying  the 
fact  that  monetary  systems  may  be  called  bimetallic,  or 
single  silver;  but  the  income  of  all  nations  within  Euro- 
pean control  or  influence,  all  wages,  all  manufactures, 
all  the  world's  produce  come  at  last  to  be  measured  in 
value  solely  and  inexorably  against  gold,  and,  infinitely 

1  Investigations  in  Currency  and  Finance,  p.  332. 


STANDARD   OF   THE   MEASURE   OF  VALUE       43 

more  than  all  coins,  against  the  unit  of  the  one-pound 
sterling.     .     .     . 

"  '  The  relative  value  of  all  of  the  metals  tends  con- 
stantly to  become  the  same  at  any  given  time  in  all  com- 
mercial markets,  without  reference  to  which  may  be  the 
legal  standard  in  each  particular  market,  so  that,  for 
example,  the  price  of  silver  purchased  with  gold  can 
never  vary  more  than  a  minute  fraction  in  Calcutta  from 
the  simultaneous  price  in  London.' 

It  is  evident  from  these  quotations  that  gold  is 
the  standard  of  the  measure  of  value  in  all  the  com- 
mercial countries  of  the  world. 

Our  own  experience  confirms  this.  During  the 
time  of  the  suspension  of  specie  payments  in  this 
country,  beginning  shortly  after  the  commencement 
of  the  late  civil  war,  and  continuing  until  1879,  our 
currency — greenbacks — were  always  rated  in  gold, 
and  never  in  silver,  although  we  were  then  legally 
on  a  bimetallic  basis.  This  shows  that  at  least 
during  and  since  the  war  gold  has  been  our  standard 
of  the  measure  of  value;  for  if  the  greenbacks — our 
currency — were  rated  in  gold,  then  ultimately  the 
prices  of  all  commodities  must  have  been  referred  to 
gold. 

In  the  foregoing  quotations  the  authors  use  the 
words"  measure  "  and"  standard"  indiscriminately, 
but  this  need  not  create  any  confusion  of  thought, 
because  in  common  discourse  "  measure  "  is  often 
used  in  the  sense  of  "  standard,"  and  "  standard  " 
in  the  sense  of  "  measure";  indeed,  one  of  the 
definitions  of  "measure"  is  that  it  is  a  "stand- 
ard of  dimensions."  It  is  very  evident,  however, 


44         NATURE,  USES,  AND   VALUE   OF   MONEY 

that  all  use  the  words  "  measure  "  and  "  standard  " 
in  the  same  sense  as  we  here  use  the  expression 
"  the  standard  of  the  measure  of  value,"  or"  the 
standard  of  value. ' '  This  appears  from  the  context, 
as,  for  example,  Mr.  Smith  not  only  speaks  of  all 
goods,  etc.,  being  computed  in  silver,  which  he  says 
was  then  the  standard,  but  also  of  the  value  of  gold 
as  being  measured  by  silver,  and  that  the  value  of 
gold  would  seem  to  depend  on  the  quantity  of  silver 
which  it  would  exchange  for,  etc.,  that  is,  that  gold 
was  rated  in  the  standard,  which  was  silver;  and 
then  he  proceeds  to  say  that,  if  gold  became  the 
standard,  silver  would  be  measured  by  it.  So  it  will 
be  seen  by  the  context  that  all  the  other  authors  use 
the  term  "  measure  "  in  the  same  sense  as  the  ex- 
pression "  the  standard  of  the  measure  of  value  "  is 
here  used,  for  they  speak  of  gold  being  directly  or 
indirectly  the  sole  measure  of  value,  or  that  all  things 
come  at  last  to  be  measured  in  value  solely  against 
gold.  This  is  the  same  as  saying  that  gold  is  the 
standard  to  which  the  values  of  all  commodities  are 
ultimately  referred.  Some  may  gather  the  impres- 
sion from  what  Mr.  Smith  says  that  making  money 
a  legal  tender  is  essential  to  constitute  any  commod- 
ity the  standard.  Any  such  impression  would  be  a 
mistake,  and  Mr.  Smith  did  not  intend  to  be  so  under- 
stood. Silver  was  the  standard  originally  in  England, 
but  it  was  not  only  the  silver  that  was  coined  into 
money,  but  all  silver  whether  in  a  state  of  coin  or 
not.  Silver  never  was  declared  a  legal  tender,  and 
yet  it  was  the  standard.  '  The  conception  of  a  law 
of  tender  is  quite  modern."  The  act  of  Parliament 


STANDARD    OF   THE    MEASURE    OF   VALUE       45 

passed  in  1774,  being  the  same  act  referred  to  in  the 
above  quotation  from  the  report  of  the  Bullion  Com- 
mittee, was  "  the  first  enactment  of  a  law  of  tender 
in  the  history  of  English  monetary  legislation."  l 

The  Bullion  Committee  in  the  foregoing  quotation 
from  its  report,  say  that  gold  is  the  standard  "  not 
only  by  the  usage  and  commercial  habits  of  the 
country  but  likewise  by  the  operation  of  law,  ever 
since  the  act  of  the  I4th  of  his  present  Majesty," 
etc.,  etc.  This  is  the  act  already  referred  to  as 
having  been  passed  in  1774,  but  the  committee  was 
evidently  mistaken  in  attributing  the  adoption  of 
gold  as  the  standard  even  in  part  to  the  passage 
of  that  act.  That  act  disallowed  a  legal  tender  in 
silver  coin  beyond  twenty-five  pounds,  but  silver 
was  still  left  a  full  legal  tender  by  weight  for  any 
amount.  Limiting  the  legal-tender  quality  of  silver 
could  not  induce  the  people  of  the  country  to  repu- 
diate it  as  a  standard,  if  they  were  otherwise  disposed 
to  retain  it  as  such.  Legal  tender  has  nothing  to 
do  with  the  standard.  Legal  tender  relates  to  money, 
but  the  standard  is  the  metal  in  all  forms  in  which  it 
may  exist.  Ricardo  attributes  the  adoption  of  gold 
as  the  standard  measure  of  value  to  the  inaccurate 
determination  of  the  mint  proportions.  "  Gold  has 
been  valued  too  high,"  etc.  He  is  evidently  mis- 
taken in  this.  An  over-valuation  of  gold  at  the 
mint  could  not  cause  or  induce  people  to  adopt  gold 
as  the  standard  of  value.  Since  it  was  the  metal 
gold,  which  was  adopted  as  the  standard,  how  could 

1  Shaw,  History  of  Currency,  p.  237.  Gold  was  a  legal  tender 
while  silver  was  the  standard. 


46         NATURE,  USES,  AND    VALUE    OF   MONEY 

its  over-valuation    in  money  have    influence  in  its 
adoption  as  the  standard  ? 

One  thing  is  certain,  that  no  act  of  the  Parliament 
of  England,  or  of  the  Congress  of  the  United  States, 
ever  enacted  in  express  terms  that  gold  should  be 
the  standard  of  the  measure  of  values  or  the  stand- 
ard of  value,  in  either  of  these  countries.  The  act 
of  the  Parliament  of  England  passed  in  1816,  and 
the  act  of  the  Congress  of  the  United  States  passed 
in  1873,  are  commonly  understood  as  having  estab- 
lished the  gold  standard,  that  is,  established  gold  as 
the  standard  of  the  measure  of  value,  or  the  standard 
of  value,  in  these  countries  respectively ;  but  neither 
of  these  acts  contain  any  declaration  to  the  effect 
that  gold  shall  be  such  standard.  Though  Mr.  Smith 
is  doubtless  correct  in  statements  as  to  silver  having 
been  the  standard  measure  of  value,  and  of  how  it 
came  to  be  so  adopted,  and  gives  a  very  fair  descrip- 
tion of  some  of  the  causes  which  changed  the  said 
standard  from  silver  to  gold,  yet  he  is  undoubtedly 
mistaken  as  to  the  time  when  the  said  standard  was  so 
changed,  for  the  evidence  is  overwhelming  that  even 
at  the  time  he  wrote,  gold  was  such  standard,  and 
that  it  had  become  so  by  the  common  consent  of 
the  people.  It  is  plain  that  gold  had  been  the 
standard  of  the  measure  of  value  in  the  United 
States  long  prior  to  the  passage  of  the  act  of  Con- 
gress. It  is  no  answer  to  assert  that  the  adoption 
of  gold  as  the  standard  of  the  measure  of  value  in 
the  United  States  was  the  result  of  the  over-valua- 
tion of  gold  in  the  coinage;  because,  even  if  gold 
was  over-valued,  that  would  not  make  gold  the 


STANDARD  OF  THE  MEASURE  OF  VALUE   47 

standard  of  the  measure  of  value,  unless  the  people 
adopted  it  as  such  by  common  consent.  The  over 
valuation  of  gold  could  not  compel  the  people  to 
adopt  gold  as  such  standard ;  for  they  might  still 
have  retained  silver  as  such  standard,  and  there  was 
nothing  to  prevent  them  from  so  doing  had  they 
wished  to  do  so.  But  they  did  not  wish  to  retain 
silver  as  such  standard,  but  did  wish  to  adopt  gold 
as  such  standard,  and,  therefore,  they  adopted  gold 
as  such  standard,  and  such  standard  of  the  measure 
of  value  cannot  be  established  or  adopted  in  any 
other  way  than  by  the  common  consent  of  the  people 
concerned.  All  these  remarks  apply  with  equal 
force  to  the  adoption  of  gold  as  the  standard  of  the 
measure  of  value  in  England.  So  it  is  clearly  demon- 
strated that  gold  has  been  established  as  the  standard 
of  the  measure  of  value  in  all  the  principal  commer- 
cial nations  of  the  world  by  the  common  consent  of 
peoples  concerned,  and  not  by  virtue  of  any  positive 
law  or  legislation ;  and  a  little  reflection  ought  to  sat- 
isfy every  person  that  such  a  standard  could  not  be 
established  by  positive  law  or  legislation,  because  it 
is  a  matter  relating  wholly  to  the  usages  and  customs 
of  trade.  Even  if  the  attempt  were  made  to  establish 
such  a  standard  by  legislation  the  law  could  not 
compel  the  people  to  use  such  standard  against  their 
consent ;  or,  if  there  was  power  by  law  to  compel 
the  use  of  a  particular  commodity  as  such  a  standard 
it  would  not  be  right,  nor  would  it  be  sound  policy 
to  do  so ;  because  it  would  be  an  unwarranted  inter- 
ference with  the  right  of  private  contract,  for  parties 
dealing  with  each  other  should  have  the  right  to  fix 


48         NATURE,  USES,  AND   VALUE   OF   MONEY 

the  prices  of  the  articles  with  respect  to  which  they 
are  dealing  by  any  instrument  of  measure,  and  by 
any  standard  for  such  measure,  they  see  fit  or  agree 
upon.  The  commercial  world  may  desire  to  change 
the  standard  of  the  measure  of  value  at  any  time 
from  gold  to  any  other  commodity,  or  group  of 
commodities.  It  is  not  likely  that  gold  will  forever 
continue  to  be  such  standard.  No  doubt  it  will  go 
its  way  in  course  of  time,  just  as  copper  and  silver 
have  gone  their  ways,  and  whenever  the  time  comes 
that  it  will  be  to  the  convenience  and  advantage  of 
trade  and  commerce  to  change  the  standard  of  the 
measure  of  value  from  gold  to  some  other  commodity 
or  commodities,  or  to  anything  else,  the  commercial 
world  will,  without  the  aid  of  any  legislation,  and, 
even  against  the  mandate  of  legislation,  make  the 
change  of  such  standard.  We  see,  then,  how  vain 
it  is  to  attempt  to  establish  the  gold  standard  of 
value,  or  the  silver  standard,  or  the  double  stand- 
ard of  gold  and  silver,  or  any  other  standard  by 
legislation. 

§  3.  It  is  the  commodity,  the  gold  metal,  and 
not  any  particular  portion  of  it  (such  as  that  portion 
existing  in  a  state  of  coin),  which  is  the  standard  of 
the  measure  of  value. 

Now  gold,  like  all  other  commodities,  is  subject 
to  variations  in  its  value  or  in  its  purchasing  power, 
occasioned  by  the  demand  for,  and  the  supply  of, 
it.  If  the  demand  for  gold  increases,  the  supply 
remaining  the  same  or  not  increasing  to  the  same 
extent  as  the  increased  demand,  then  the  purchasing 
power  of  gold  will  rise,  or  appreciate.  If  the  supply 


STANDARD  OF  THE  MEASURE  OF  VALUE   49 

increases,  the  demand  remaining  the  same  or  not  in- 
creasing to  the  same  extent  as  the  increased  supply, 
then  the  purchasing  power  of  gold  falls,  or  depre- 
ciates, and  these  variations  in  the  purchasing  power 
has,  as  has  been  already  explained,  its  effect  upon 
the  prices  of  commodities;  for  instance,  if  the  pur- 
chasing power  of  gold  increases,  prices  of  com- 
modities will  fall;  if  the  purchasing  power  of  gold 
decreases,  then  the  prices  of  commodities  will  rise. 
But  it  is  always  to  be  remembered  that  a  rise  or  a 
fall  of  prices  consequent  upon  the  variations  in  the 
purchasing  power  of  gold  is  only  nominal,  because 
if,  on  account  of  a  rise  in  the  purchasing  power  of 
gold,  a  seller  of  goods  receives  a  less  price  or  a  less 
amount  of  money  for  his  goods  than  he  did  for  the 
same  quantity  of  goods  before  the  increase  in  the 
purchasing  power  of  gold,  and  although  he  receives 
a  less  amount  of  money,  yet  he  receives  just  as  much 
purchasing  power  as  he  did  before  the  appreciation 
of  gold ;  likewise  the  reverse  of  this  would  take 
place  on  a  decrease  or  fall  in  the  purchasing  power 
of  gold ;  then  prices  would  rise,  but  the  rise  would 
only  be  nominal.  So  if  the  purchasing  power  of 
gold  decreases,  the  levy  and  assessment  of  taxes  and 
other  public  burdens  would  necessarily  be  corre- 
spondingly increased,  so  that  by  the  increase  of 
rates  and  levies  at  least  the  same  amount  of  purchas- 
ing power  would  be  secured ;  so,  likewise  damages 
for  injuries  to  the  person  or  to  property  would  prob- 
ably be  or  should  be  increased,  in  order  that  the 
person  injured  might  receive  about  the  same  amount 
pf  purchasing  power  as  he  would  have  received  had 


50         NATURE,  USES,  AND    VALUE   OF   MONEY 

there  been  no  decrease  in  the  purchasing  power  of 
gold,  and  it  would  be  so  also  on  liabilities  the 
amounts  of  which  are  rated  or  expressed  in  money. 

The  reader  may  now,  perhaps,  be  better  enabled 
to  understand  why  it  is,  that  it  is  not  that  portion 
of  gold  in  a  state  of  coin  which  is  alone  the  standard 
of  the  measure  of  value,  because  that  portion  of 
gold  is  liable  to  the  same  fluctuations  in  its  value  as 
gold  is  on  account  of  changes  in  the  demand  or 
supply ;  so,  it  will  be  seen  that  it  is  gold,  the  metal 
gold,  which  is  the  standard,  etc. 

When  all  the  money  in  use  is  at  par  with  the 
standard  of  the  measure  of  value,  it  would  appear 
as  if  the  standard  existed  only  nominally;  but  it 
is  really  in  existence  and  in  operation  at  all  times. 
If  the  money  in  use  be  depreciated,  then  the  exist- 
ence and  operation  of  a  standard  become  at  once 
apparent,  for  it  will  then  take  a  greater  quantity  of 
that  money  in  actual  use  than  one  of  its  dollars  to 
equal  the  value  of  the  quantity  of  gold  required  to 
be  in  a  dollar  piece,  and  hence  prices  of  commodities, 
etc.,  will  rise;  and  it  is  only  by  comparison  of  the 
money  with  the  standard  that  depreciation  is  made 
manifest.  This  would  hold  true  even  if  gold  coin 
were  the  only  money  in  circulation,  for  then,  if  the 
coin  were  debased  by  clipping,  sweating,  friction,  or 
by  any  other  cause,  it  would  depreciate,  and  the 
same  effects  would  follow  from  such  depreciation  as 
from  the  depreciation  of  any  other  money  which 
might  happen  to  be  in  actual  use.  On  the  other 
hand,  if  the  money  in  actual  use,  silver,  for  instance, 
should  appreciate  so  that  the  value  of  the  silver  in  a 


STANDARD  OF  THE  MEASURE  OF  VALUE   51 

silver  dollar  were  greater  than  the  value  of  the  gold 
in  a  gold  dollar,  then  prices  would  apparently  fall, 
because  the  appreciated  silver  dollar  would  be  con- 
tained a  less  number  of  times  in  any  given  commo- 
dity than  the  dollar  which  was  of  the  value  required 
by  the  standard  of  the  measure  of  value. 

Hitherto  money  has  been  stated  to  be  the  measure 
of  value,  and  gold  as  the  standard  of  the  measure  of 
value,  but  these  expressions  are  to  be  understood  in 
the  sense  that  the  value  of  money,  the  dollar,  for 
instance,  is  the  measure  of  the  value  or  the  prices  of 
other  commodities,  or  is  that  thing  in  which  the 
prices  of  other  commodities  are  estimated,  and  in 
terms  of  which  money,  dollars,  for  instance,  the  said 
prices  are  expressed  (in  the  same  sense  as  a  yard- 
stick is  the  instrument  which  measures  the  length  of 
a  piece  of  cloth  and  in  terms  of  which  the  length  of 
a  piece  of  cloth  is  expressed),  and  the  expression  that 
gold  is  the  standard  of  the  measure  of  value  is  used 
in  the  sense,  that  the  value  of  gold  is  the  standard 
of  the  measure  of  value.  Hereafter  in  speaking  of  the 
measure,  etc.,  or  of  the  standard,  etc.,  we  will,  for  the 
sake  of  brevity,  merely  express  the  measure,  etc.,  in 
the  terms,  "  measure  of  value,"  or  that  "  money  is 
the  measure  of  value,"  and  "  standard  of  value,"  or 
that  gold  is  the  standard  of  value,  with  this  caution, 
however,  that  each  of  these  expressions  is  to  be 
understood  as  above  explained. 

Such  is  the  actual  method  employed  for  the  meas- 
urement of  prices  and  liabilities,  and  it  is  so  straight- 
forward, simple,  and  natural,  that  one  would  suppose 
that  it  would  be  received  and  accepted  by  all  as  the 


52         NATURE,  USES,  AND    VALUE    OF    MONEY 

means  and  methods  by  which  prices  and  liabilities 
are  actually  measured  or  estimated  ;  yet  this  method 
is  by  no  means  the  accepted  theory.  The  accepted 
theory  is  that  prices  are  governed  entirely  by  the 
amount  or  quantity  of  money  in  circulation.  It  is 
evident  that,  if  prices  are  dependent  upon  the  quan- 
tity of  money,  it  must  be  because  the  quantity  of 
money  controls  prices,  or  because  the  use  of  the 
precious  metals  as  money  creates  such  a  demand  for 
these  metals  as  will  cause  a  rise  in  their  market  price, 
or  an  increase  in  their  purchasing  power, — on  the 
theory  that  the  greater  the  quantity  of  such  metals 
used  as  money,  the  greater  the  increase  of  their 
value,  or  purchasing  power — or  of  both  of  these 
causes. 


CHAPTER  V 

OF   THE    QUANTITY   THEORY 

§  I.  THIS  theory,  as  already  stated,  is  the  ac- 
cepted one,  and  it  is  supported  by  the  opinions  of 
many  of  the  most  eminent  political  economists ;  still, 
I  must  dissent  from  it.  It  may  seem  presumptuous 
in  me  to  attempt  to  elevate  my  opinion  high  enough 
to  place  it  in  opposition  to  the  opinions  of  so  many 
distinguished  economists.  I  hope,  however,  that  I 
shall  be  able  to  justify  my  boldness. 

Ricardo  was  not  the  originator  of  this  quantity 
theory,  but  he,  so  far  as  I  know,  has  explained  its 
operation  more  fully  than  any  other  author.  Liberal 
quotations  will  be  made  from  his  works.  As  these 
quotations  from  Ricardo  are  all  taken  from  his  works 
as  edited  by  McCulloch,  it  will  not  be  necessary  to 
do  more,  in  defining  the  place  from  whence  the 
quotation  is  taken,  than  to  refer  to  the  Essay  and 
the  page  of  the  works. 

"  The  precious  metals  employed  for  circulating  the 
commodities  of  the  world,  previously  to  the  establishment 
of  banks,  have  been  supposed  by  the  most  approved 
writers  on  political  economy  to  have  been  divided  into 
certain  proportions  among  the  different  civilized  nations 
of  the  earth,  according  to  the  state  of  their  commerce 
and  wealth,  and,  therefore,  according  to  the  number  and 

53 


54         NATURE,  USES,  AND   VALUE   OF   MONEY 

frequency  of  the  payments  which  they  had  to  perform. 
While  so  divided  they  preserved  everywhere  the  same 
value,  and  as  each  country  had  an  equal  necessity  for  the 
quantity  actually  in  use,  there  could  be  no  tempta- 
tion offered  to  either  for  their  importation  or  exporta- 
tion." ' 

"  The  value  of  the  circulating  medium  of  every 
country  bears  some  proportion  to  the  value  of  the  com- 
modities which  it  circulates.  In  some  countries  this 
proportion  is  much  greater  than  in  others,  and  varies  on 
some  occasions  in  the  same  country.  It  depends  upon 
the  rapidity  of  circulation,  upon  the  degree  of  confidence 
and  credit  existing  between  traders,  and,  above  all,  on 
the  judicious  operations  of  banking.  .  .  .  What 
that  proportion  may  be  has  been  variously  estimated."  2 
'  The  quantity  of  metal  employed  as  money,  in  effect- 
ing the  payments  of  any  particular  country  using  metallic 
money;  or  the  quantity  of  metal  for  which  paper  money 
is  the  substitute,  if  paper  money  be  partly  or  wholly  used, 
must  depend  on  three  things:  first,  on  its  value;  secondly, 
on  the  amount  or  value  of  the  payments  to  be  made; 
and,  thirdly,  on  the  degree  of  economy  practiced  in  effect- 
ing those  payments. 

"  And  if  a  country  uniformly  employed  the  same  metal 
as  a  standard,  the  quantity  of  money  required  would  be 
in  an  inverse  proportion  to  the  value  of  that  metal. 
Suppose  the  metal  to  be  silver,  and  that,  from  the  diffi- 
culty of  working  the  mines,  silver  should  be  doubled  in 
value, — half  the  quantity  only  would  then  be  wanted  for 
money;  and  if  the  whole  business  of  circulation  were 
carried  on  by  paper,  of  which  the  standard  was  silver, 

1  High  Price  of  Bullion,  Works,  p.  263  ;  same,  Reply  to  Mr. 
Bosanquet,  Works,  p.  346. 

9  High  Price  of  Bullion,   Works,  p.  284. 


THE   QUANTITY  THEORY  55 

— to  sustain  that  paper  at  its  bullion  value,  it  must  in  like 
manner  be  reduced  one-half.  .  .  .  When  the  num- 
ber of  transactions  increase  in  any  country  from  its  in- 
creasing opulence  and  industry — bullion  remaining  at  the 
same  value,  and  the  economy  in  the  use  of  money  also 
continuing  unaltered — the  value  of  money  will  rise  on 
account  of  the  increased  use  which  will  be  made  of  it, 
and  will  continue  permanently  above  the  value  of  bullion, 
unless  the  quantity  be  increased,  either  by  the  addition 
of  paper,  or  by  procuring  bullion  to  be  coined  into 
money.  There  will  be  more  commodities  bought  and 
sold,  but  at  lower  prices,  so  that  the  same  money  will 
still  be  adequate  to  the  increased  number  of  transactions 
by  passing  in  each  transaction  at  a  higher  value.  The 
value  of  money,  then,  does  not  wholly  depend  upon  its 
absolute  quantity,  but  on  its  quantity  relatively  to  the 
payments  which  it  has  to  accomplish;  and  the  same 
effects  would  follow  from  either  of  two  causes — from  in- 
creasing the  uses  for  money  one  tenth, — or  from  dimin- 
ishing its  quantity  one  tenth  ;  for,  in  either  case,  its  value 
would  rise  one  tenth," '  and  "  the  value  of  such  money 
must  depend  wholly  upon  its  quantity."  a 

11  The  quantity  of  money  that  can  be  employed  in  a 
country  must  depend  on  its  value."  3 

"No  increase  or  decrease  of  its  quantity,  whether  con- 
sisting of  gold,  silver,  or  paper  money,  can  increase  or 
decrease  its  value  above  or  below  this  proportion.  If 
the  mines  cease  to  supply  the  annual  consumption  of  the 
precious  metals  money  will  become  more  valuable,  and 
a  smaller  quantity  will  be  employed  as  a  circulating 

1  Proposals  for  an  Economical  and  Secure  Currency,  Works,  p.  398. 

2  Reply  to  Mr.  Bosanquet,   Works,  p.  346. 

3  Political  Economy,   Works,  p.  213  ;  same,  Reply  to  Mr.  Bosan* 
quet,  etc.,   Works,  p.  341. 


56         NATURE,  USES,  AND   VALUE    OF   MONEY 

medium.  The  diminution  in  the  quantity  will  be  pro- 
portioned to  the  increase  of  its  value.  In  like  manner, 
if  new  mines  be  discovered,  the  value  of  the  precious 
metals  will  be  reduced,  and  an  increased  quantity  used 
in  the  circulation;  so  that  in  either  case  the  relative 
value  of  money  to  the  commodities  which  it  circulates 
will  continue  as  before."  1 

"If  an  addition  be  made  to  a  currency  consisting 
partly  of  gold  and  partly  of  paper,  by  an  increase  of 
paper  currency,  the  value  of  the  whole  currency  would 
be  diminished,  or,  in  other  words,  the  prices  of  commo- 
dities would  rise,  estimated  either  in  gold  coin  or  in 
paper  currency.  The  same  commodity  would  purchase, 
after  the  increase  of  paper,  a  greater  number  of  ounces 
of  gold  coin,  because  it  would  exchange  for  a  greater 
quantity  of  money.  But  these  gentlemen  do  not  dispute 
the  fact  of  the  convertibility  of  coin  into  bullion,  in  spite 
of  the  law  to  prevent  it.  Does  it  not  follow,  therefore, 
that  the  value  of  gold  in  coin,  and  the  value  of  gold  in 
bullion,  would  speedily  approach  a  perfect  equality  ?  If, 
then,  a  commodity  would  sell  in  consequence  of  the  issue 
of  paper  for  more  gold  coin,  it  would  also  sell  for  more 
gold  bullion.  It  cannot,  therefore,  be  correct  to  say, 
that  the  relative  value  of  gold  bullion  and  commodities 
would  be  the  same  after  as  before  the  increase  of 
paper." 

"  It  has  been  observed  ....  that  an  increase 
in  the  paper  currency  will  only  occasion  a  rise  in  the  paper 
or  currency  price  of  commodities,  but  will  not  cause  an 
increase  in  their  bullion  price. 

"  This  would  be  true  at  a  time  when  the  currency 

1  High  Price  of  Bullion,   Works,  pp.  284-5. 

8  Reply  to  Mr.  Bosanquet,  etc  ,   Works,  pp.  337-8. 


THE   QUANTITY   THEORY  57 

consisted  wholly  of  paper  not  convertible  into  specie, 
but  not  while  specie  formed  any  part  of  the  circulation. 
In  the  latter  case  the  effect  of  an  increased  issue  of  paper 
would  be  to  throw  out  of  circulation  an  equal  amount 
of  specie;  but  this  could  not  be  done  without  adding  to 
the  quantity  of  bullion  in  the  market,  and  thereby  lower- 
ing its  value,  or,  in  other  words,  increasing  the  bullion 
price  of  commodities. ' ' 

"  Suppose  that  England's  share  amounted  to  a  million 
of  ounces;  if  by  a  law  which  could  be  effectually  exe- 
cuted a  million  and  a  half  of  ounces  in  coin  could  be 
forced  or  retained  in  circulation  by  preventing  its  being 
melted  or  exported;  or  if,  by  means  of  a  restriction  bill, 
the  Bank  should  be  enabled  to  maintain  an  amount  of 
paper  which  should  represent  a  million  and  a  half  of 
ounces  of  coined  gold  in  circulation,  such  million  and  a 
half  would  be  of  no  more  value  in  currency  than  a  million 
of  ounces;  and  consequently  an  ounce  and  a  half  of 
coined  gold,  or  bank  notes  which  represented  that 
amount,  would  purchase  no  more  of  any  commodity  than 
an  ounce  of  gold  bullion.  If,  on  the  other  hand,  Gov- 
ernment were  to  charge  a  seigniorage  of  fifty  per  cent., 
or  if  the  issues  of  the  Bank  were  to  be  exceedingly  limited, 
whilst  they  had  also  the  exclusive  right  of  coining,  so  that 
the  whole  amount  of  their  notes  did  not  exceed  what 
should  represent,  at  the  mint  price,  half  a  million  of 
ounces  of  gold,  that  half  million  would  in  currency 
pass  for  the  same  value  as  the  million  of  ounces  in  the 
one  case  and  the  million  and  a  half  in  the  other  did 
before."3 

1  High  Price  of  Bullion,   Works,  p.  270,  note. 

2  Reply  to  Mr.   Bosanquet,  etc.,   Works,  pp.   346-7;    and  to  the 
same  effect  see  Reply  to  Mr.   Bosanquet,  etc.,   Works,  pp.  326-7; 
and  to  the  same  effect  that  the  currency  may  as  effectually  be  in- 


58         NATURE,  USES,  AND  VALUE   OF   MONEY 

"  If  the  Bank  capriciously  limited  the  quantity  of  their 
paper,  they  would  raise  its  value,  and  gold  might  appear 
to  fall  below  the  limits  at  which  I  propose  the  Bank 
should  purchase.  Gold  in  that  case  might  be  carried  to 
the  mint,  and  the  money  returned  from  thence  being 
added  to  the  circulation,  would  have  the  effect  of 
lowering  its  value,  and  making  it  again  conform  to  the 
standard." 

"  It  also  follows  from  these  principles,  that  in  a  country 
where  gold  is  the  measure  of  value,  the  price  of  gold 
bullion  (where  the  law  offers  no  restraint  against  expor- 
tation) can  never  exceed  its  mint  price;  and  that  it  can 
never  fall  more  below  it  than  the  expenses  of  coinage; 
and  that  these  variations  depend  wholly  on  the  supply  of 
coin  or  paper  currency  being  proportioned  to  the  trade 
of  the  country;  or,  in  other  words,  that  nothing  can 
raise  the  value  of  bullion  even  so  high  as  the  mint  price 
but  an  excess  of  circulation."  a 

"  That  commodities  would  rise  or  fall  in  price,  in  pro- 
portion to  the  increase  or  diminution  of  money,  I  assume 
as  a  fact  which  is  incontrovertible." 

"  Suppose,  again,  the  case  reversed,  and  that  all  other 
currencies  remained  as  before,  while  half  of  that  of  Eng- 
land was  retrenched.  If  the  coinage  of  money  at  the 
mint  was  on  the  present  footing,  would  not  the  prices  of 
commodities  be  so  reduced  here  that  their  cheapness 
would  invite  foreign  purchasers,  and  would  not  this  con- 
tinue until  the  relative  proportions  in  the  different  cur- 
rencies were  restored  ? 

creased   by  paper  as  by  coin.     Political  Economy,  Works,  p.  214  ; 
and  High  Price  of  Bullion,    Works,  pp.  264-5. 

1  Proposals  for  an  Economical  and  Secure  Currency,  Works,  p.  406. 

2  Reply  to  Mr.  Bosanquet,  etc.,   Works,  p.  347. 

3  Reply  to  Mr.  Bosanquet,  etc. ,   Works,  p.  326,  note. 


THE   QUANTITY  THEORY  $9 

"  If  such  would  be  the  effects  of  a  diminution  of 
money  below  its  natural  level,  and  that  such  would  be 
the  consequences  the  most  celebrated  writers  on  political 
economy  are  agreed,  how  can  it  be  justly  contended  that 
the  increase  or  diminution  of  money  has  nothing  to  do 
either  with  the  foreign  exchanges  or  with  the  price  of 
bullion?  "  l 

"Suppose  England  to  have  one  thousand  ounces  of 
gold  in  a  state  of  bullion,  and  one  thousand  ounces  in  a 
state  of  coin,  whilst  her  exchange  with  foreign  countries 
was  at  par;  that  is  to  say,  whilst  the  value  of  gold  abroad 
was  precisely  the  same  as  here,  and  therefore  could  be 
neither  advantageously  exported  nor  imported. 

"  Suppose,  too,  that  the  Bank  were  at  such  a  time  to 
issue  notes  to  an  amount  which  should  represent  one 
thousand  ounces  more  of  gold,  and  that  they  were  not  ex- 
changeable for  specie.  If  her  bullion  retained  the  same 
value  after  as  before  the  issue  of  paper  (which  is  the 
point  contended  for),  how  could  a  single  guinea  be 
exported  ?  Who  would  be  at  the  trouble  and  risk  of 
sending  guineas  to  the  Continent  to  be  sold  there  for 
their  value,  as  bullion,  while  the  value  of  bullion  con- 
tinued here  as  high  as  before,  and  consequently  as  high 
as  the  price  abroad  ?  Would  not  the  coin  be  melted  and 
sold  as  bullion  at  home,  till  the  value  of  bullion  had  so 
much  diminished  in  its  relative  value  to  the  bullion  of 
other  countries,  and  therefore  to  the  relative  value  of 
commodities  here,  as  to  pay  the  expenses  of  transporta- 
tion ;  or,  in  other  words,  till  the  exchange  had  fallen  to 
the  price  at  which  it  would  repay  such  expenses  ?  At 
that  price  the  whole  one  thousand  ounces  would  go  at 
once,  or  if  any  part  were  retained  in  circulation,  it  would 

1  Reply  to  Mr.  Bosanquet,  etc.,   Works,  p.  327. 


60         NATURE,  USES,  AND   VALUE   OF   MONEY 

not  be  of  less  value  than  an  equal  weight  of  gold  bul- 
lion. .  .  .  That  argument  would  be  equally  appli- 
cable if  the  addition  to  the  currency  had  been  made  in 
gold  coin,  and  not  in  paper  currency. 

"  It  appears,  therefore,  evident,  first,  that  by  the  addi- 
tion of  paper  to  a  currency  consisting  partly  of  gold  and 
partly  of  paper,  gold  bullion  would  not  necessarily  rise 
in  the  same  degree  as  other  commodities;  and  secondly, 
that  such  addition  will  cause  depression  not  in  the 
nominal  but  in  the  real  exchange,  and  therefore  that  gold 
will  be  exported."  1 

"  Let  us  recur  to  the  effect  which  would  result  from 
the  establishment  of  a  bank  of  undoubted  credit  in  a 
country  where  the  circulation  was  wholly  metallic. 

"  Such  a  bank  would  discount  bills  or  make  advances 
to  Government  as  our  Bank  does;  and  if  the  principle 
now  contended  for  by  Mr.  Bosanquet  be  correct,  their 
notes  would  necessarily  return  on  them  as  soon  as  issued, 
because  the  metallic  currency  being  before  sufficient  for 
the  commerce  of  the  country,  no  additional  quantity  could 
be  employed.  But  this  is  contrary  both  to  theory  and 
experience.  The  issues  of  the  bank  would,  as  they  now 
do,  not  only  depreciate  the  currency,  but  the  value  of 
bullion  at  the  same  time."  2 

"  Any  of  these  commodities  [coffee,  sugar,  indigo,  ivory, 
etc.]  might  be  exported  without  producing  much  in- 
convenience from  their  enhanced  price;  whereas  money, 
which  circulates  all  other  commodities,  and  the  increase 
or  diminution  of  which,  even  in  a  moderate  proportion, 
raises  or  falls  prices  in  an  extravagant  degree,  could  not 
be  exported  without  the  most  serious  consequences." 

1  Reply  to  Mr.  Bosanquet,  etc.,   Works,  pp.  338-9. 

2  Reply  to  Mr.  Bosanquet,  etc.,   Works,  pp.  342-3. 

3  Appendix  to  High  Price  of  Bullion,   Works,  p.  293. 


THE   QUANTITY   THEORY  6l 

"  If  it  be  admitted,  and  how  can  it  be  denied  ?  that  the 
price  of  commodities  must  everywhere  rise  or  fall  in 
proportion  to  the  increase  or  diminution  of  the  money 
which  circulates  them;  "  * 

"  I  hold  it  as  a  conclusion  which  will  not  admit  of  dis- 
pute, that  if  neither  commodities,  nor  the  demand  for 
them,  nor  the  money  which  circulates  them,  suffer  either 
increase  or  diminution,  prices  must  continue  unaltered 
whatever  quantity  of  gold  or  silver  may  exist  in  the  state 
of  bullion  in  such  country." 

Mr.  J.  S.  Mill  expresses  substantially  the  same 
views,  and  says  further:  "  That  an  increase  of  the 
quantity  of  money  raises  prices,  and  a  diminution 
lowers  them  is  the  most  elementary  proposition  in 
the  theory  of  currency,  and  without  it  we  should 
have  no  key  to  any  of  the  others." 

§  2.  The  propositions  contained  in  the  quotations 
set  forth  in  the  foregoing  section  may  be  stated  as 
follows : 

(1)  That  the  precious  metals  employed  as  money, 
before   the    establishment  of    banks,   were   divided 
among  the  different  nations  of  the  earth,  in  certain 
proportions.     (But  this  rests  only  on  supposition.) 

(2)  The  value  of  the  circulating  medium  of  every 
country  bears  some  proportion  to  the  commodities 
which  it  circulates.     (What  this  proportion  is,  is  not 
given.) 

(3)  The  quantity  of  metal,    or  of   paper   as  its 
substitute,  employed  as  money  in  effecting  the  pay- 

1  Reply  to  Bosanquet,  etc.,   Works,  p.  350. 

2  Appendix  to  Reply  to  Mr.  Bosanquet,  etc.,   Works,  p.  365. 

3  Political  Economy,  Bk.  III.,  chap.  viii. 


62         NATURE,  USES,  AND  VALUE   OF  MONEY 

ments  of  any  country,  depends  upon  three  things: 
1st,  on  its  value;  2d,  on  the  amount  or  value  of  the 
payments  to  be  made;  and  3d,  on  the  degree  of 
economy  practised  in  the  use  of  it. 

(4)  The  value  of  money  does  not  wholly  depend 
upon  its  absolute  quantity,  but  on  its  quantity  rela- 
tively to  the  payments  which  it  has  to  accomplish. 

(5)  The  value  of  money  depends  wholly  upon  its 
quantity. 

(6)  The  quantity  of  money  that  can  be  employed 
depends  upon  its  value. 

(7)  That  the  value  of  metallic  money   depends 
upon  the  value  of  the  metal  contained  in  it;  if  the 
metal  itself  be  increased  in  value,   the  money  will 
likewise  be  increased  in  value  to  the  same  extent ; 
or,  if  the  value  of  the  metal  be  reduced,  the  value 
of  money  will  be  reduced  to  the  same  extent. 

(8)  That  an   increase    of   the  currency  will  not 
only  depreciate  the  whole  currency,  but  the  value  of 
bullion  at  the  same  time;  if  the  number  of  transac- 
tions increase  in  any  country  the  value  of  money 
will  rise  on  account  of  the  increased  use  which  will 
be  made  of  it,  and  will  continue  permanently  above 
the  value  of  bullion  until  the  quantity  of  money  be 
increased;   and  the  same  effects   will  follow  if  the 
quantity  of  money  be  diminished ;  and  a  decrease  in 
the  number  of  transactions,   or  an  increase  in  the 
quantity  of  money  will  decrease  the  value  of  money, 
but  in  these  cases  the  relative  value  of  bullion  with 
other  commodities  will  decrease,  that  is,  will  decrease 
with  the  decrease  in  the  value  of  money,  and  that 
the  variations  in  the  price  of  gold  bullion  depend 


THE   QUANTITY   THEORY  63 

wholly  on  the  supply  of  coin   and  paper  currency 
being  proportioned  to  the  trade  of  the  country. 

(9)  That  the  consequences  of  an  increase,  or  of 
a  decrease,  of  the  circulating  medium  by  an  increased 
issue  of  paper  money,  or  by  a  decrease  in  the  quan- 
tity of  such  paper  money,  are  the  same  as  if  the 
increase,   or  decrease,   of  the  circulation  had  been 
caused  by  an  increase   or   diminution   of  metallic 
money. 

(10)  That  if  an  addition  be  made  to  a  circulation 
consisting  partly  of  gold  and  partly  of  paper,  by  an 
increase  of  paper  currency,  the  value  of  the  whole 
currency  will  be  diminished,  and  prices  of  commodi- 
ties estimated  either  in  gold  coin  or  in  paper  currency 
will  rise ;  and  the  same  if  the  increase  be  caused  by 
an  addition  of  gold  coin;  and  if  the  quantity  of  the 
currency  be  diminished,  the  value  of  the  whole  cur- 
rency will  be  increased  and  prices  will  fall. 

(11)  That  commodities  will  rise  or  fall  in  price 
in  proportion  to  the  increase  or  diminution  of  money, 
and  that  the  quantity  of  gold  or  silver  bullion  in 
existence  has  no  effect  whatever  on  prices. 

As  to  the  first  proposition,  it  is  only  necessary  to 
say  that  it  rests  upon  mere  supposition.  It  is  un- 
necessary to  further  consider  it  here,  except  to 
explain  that  the  proportion  of  each  of  the  nations  of 
the  earth  is  maintained,  according  to  the  explana- 
tion of  this  theory,  through  the  intervention  of  the 
prices  of  commodities ;  that  if  the  quantity  of  money 
in  any  particular  country  falls  below  this  proportion, 
the  prices  of  commodities  in  that  country  will  fall, 
and  commodities  will  be  exported  to  other  countries 


64         NATURE,  USES,  AND   VALUE   OF   MONEY 

in  exchange  for  money  or  specie  until  the  equili- 
brium is  restored.  This  has  no  special  bearing  on 
the  quantity  theory  which  we  are  now  investigating. 
In  so  far  as  it  does,  or  does  not,  affect  prices,  it  will 
be  fully  considered  when  we  come  to  a  consideration 
of  the  quantity  theory  generally. 

The  second  proposition  is  the  basis  of  the  quan- 
tity theory,  and  we  shall  haVe  more  to  say  about  it 
hereafter. 

The  third,  fourth,  fifth,  sixth,  eighth,  ninth, 
tenth,  and  eleventh  propositions  relate  to  the  quan- 
tity theory,  and  explain  its  operation  and  its  effects. 
But  the  third  and  sixth  propositions  are  irreconcilable 
with  the  fourth  and  fifth  propositions. 

The  value  of  money  depends  upon  its  quantity; 
and  the  quantity  depends  upon  its  value.  If  the 
quantity  theory  were  correct,  then  it  might  be  proper 
enough  to  say  that  the  value  of  money  depended 
upon  its  quantity ;  but  if  its  value  does  depend  upon 
the  quantity,  the  quantity  cannot  depend  upon  the 
value.  Besides,  since  Ricardo  insists  that  the  cir- 
culation will  absorb  any  quantity  of  currency,  but 
that  the  increased  quantity  will  not  be  of  more  value 
than  the  quantity  was  before  the  increase,  it  is, 
simply,  impossible  that  the  quantity  depends  upon 
the  value. 

The  seventh  proposition,  to  wit:  "That  the 
value  of  metallic  money  depends  upon  the  value  of 
the  metal  contained  in  it ;  if  the  metal  be  increased 
in  value,  money  will  likewise  be  increased  in  value; 
or,  if  the  value  of  the  metal  be  reduced,  then  the 
value  of  money  will  be  reduced,  "  is  antagonistic  to 


THE   QUANTITY  THEORY  65 

all  the  remaining  propositions  which  constitute  the 
quantity  theory,  and  this  seventh  proposition  and 
the  quantity  theory  are  so  antagonistic  that  both 
cannot  be  right,  and  it  is  impossible  that  both  can 
exist  at  the  same  time  and  in  the  same  field  of 
operations.  If  the  value  of  money  depends  upon 
the  value  of  the  metal  of  which  it  is  made,  and  if  it 
is  subject  to  all  the  variations  of  the  value  of  that 
metal,  how  can  the  value  of  money  at  the  same  time 
depend  upon  its  quantity  ?  What  has  its  quantity 
to  do  with  its  value  ?  And,  if  the  value  of  money 
and  the  value  of  bullion,  which  is  the  money  metal, 
depend  upon  the  quantity  of  money,  how  can  the 
value  of  the  money  at  the  same  time  depend  upon 
the  value  of  the  metal  ?  It  is  walking  in  a  circle  all 
the  time — the  value  of  money  depends  upon  the 
value  of  the  metal  contained  in  it,  and  the  value  of 
the  money  metal  depends  upon  the  quantity  of  the 
money;  and  these  propositions  are  just  that  incon- 
sistent and  antagonistic ;  and  a  bare  reading  and 
comparison  of  them  with  each  other  will  show  them 
to  be  so.  Suppose  that  on  account  of  the  scarcity 
of  the  metal  the  value  of  money  should  rise;  and 
suppose  at  the  same  time  the  quantity  of  the  cur- 
rency be  increased,  no  matter  whether  by  coin  or  by 
paper  money  or  by  both,  what  will  the  metallic 
money  do  ?  Will  it  rise  in  value  in  response  to  the 
increased  value  of  the  metal,  or  will  it  fall  in  value 
in  response  to  the  increased  quantity  of  the  cur- 
rency ?  This  demonstrates  how  antagonistic  these 
propositions  are  to  each  other.  The  seventh  propo- 
sition is  absolutely  correct,  and  it  is  just  what  is  ad- 


66        NATURE,  USES,  AND  VALUE   OF   MONEY 

vocated  in  this  work.  But  we  will,  for  the  present, 
leave  it  out  of  consideration  and  pursue  our  investi- 
gation of  the  quantity  theory. 

§  3.  From  the  foregoing  propositions,  it  appears 
that  the  quantity  theory  and  its  operations  are  as 
follows: 

The  value  of  the  circulating  medium  of  every 
country  bears  some  proportion  to  the  commodities 
which  it  circulates.  Any  change  in  the  quantity  of 
money  does  not  change  the  value  of  the  whole  cur- 
rency; that  value  remains  the  same  as  before  the 
change;  but  the  units  or  individual  pieces  of  money 
which  make  up  this  quantity  of  money  will  be 
changed  in  their  value  by  such  change  in  the  quan- 
tity of  money.  Now,  the  quantity  of  money  is  at 
all  times  made  up  of  dollars,  that  is,  of  a  certain 
number  of  dollars.  If  the  quantity  of  money  is  in- 
creased either  by  the  addition  of  paper  or  metallic 
money  or  by  both,  although  the  whole  quantity  of 
money  will  not  be  increased  in  value  by  reason  of 
such  increase  of  the  currency,  still  the  value  of  the 
individual  dollars  will  be  decreased,  and  there  will 
be  a  corresponding  rise  in  the  prices  of  all  commodi- 
ties, except  the  bullion  or  metal  out  of  which  the 
metallic  money  is  coined,  which  will  decrease  in 
value  as  compared  with  money.  If  the  quantity  of 
money  be  diminished  either  by  the  withdrawal 
of  coin  or  paper  money,  then  the  value  of  the  in- 
dividual dollar  will  be  increased,  and  all  commodi- 
ties, including  bullion,  will  fall  in  price.  If  the 
number  of  transactions,  or  payments  to  be  made 
with  money,  in  any  country,  increase,  then  the  value 


THE   QUANTITY   THEORY  67 

of  the  individual  dollars  will  increase,  causing  a  fall 
in  the  prices  of  all  commodities,  and  the  value  of  the 
dollars  will  be  above  the  value  of  the  same  quantity 
of  metal  in  the  state  of  bullion.  And  if  the  number 
of  transactions  or  payments  which  money  has  to 
make  in  any  country  decreases,  the  value  of  the  in- 
dividual dollars  will  be  correspondingly  decreased, 
and  the  prices  of  all  commodities,  excepting  bullion, 
will  rise.  Such  is  the  explanation  of  the  theory  and 
its  operation  as  enunciated  by  Ricardo.  The  ex- 
planation is  lengthy,  perhaps  too  lengthy,  but  the 
theory  is  of  itself  so  cumbersome  and  its  operation 
so  circuitous,  that  I  found  it  difficult  to  explain 
them  more  briefly. 

Mr.  J.  S.  Mill,  while  fully  adopting  the  theory 
as  stated  by  Ricardo,  adds  another  phase  to  it.  In 
the  same  chapter  of  his  work  already  referred  to,  he 
says: 

'  The  demand  for  money,  again,  consists  of  all  the 
goods  offered  for  sale.  Every  seller  of  goods  is  a  buyer 
of  money,  and  the  goods  he  brings  with  him  constitute 
his  demand. 

"  As  the  whole  goods  in  the  market  compose  the  whole 
demand  for  money,  so  the  whole  of  the  money  constitutes 
the  demand  for  goods." 

That  is  to  say,  all  the  goods  in  the  market  demand 
all  the  money,  and  all  the  money  demands  all  the 
goods. 

§  4.  The  doctrine  of  Mr.  Mill  as  to  demand  and 
supply  is  unsound.  As  he  states  it,  all  the  goods 
offered  for  sale  is  the  aggregate  demand  for  the 


68         NATURE,    USES,    AND   VALUE   OF   MONEY 

whole  of  the  supply  of  money,  and  the  whole  supply 
of  money  is  the  aggregate  demand  for  all  the  goods. 
Every  person  who  offers  goods  for  sale  in  exchange 
for  money  does  not  so  offer  his  goods  for  money  for 
the  money's  sake,  but  for  the  goods  and  commodi- 
ties which  he  can  procure  by  means  of  the  money, 
so  that  the  real  and  effective  aggregate  demand  is 
for  the  aggregate  of  all  the  available  supply  of  goods 
and  commodities.  Aggregate  of  demand  and  aggre- 
gate of  supply  are  analogous  conceptions;  neither 
are  independent  facts,  but  are  the  same,  only  they 
are  presented  under  different  aspects,  and  both  are 
for  the  same  things,  and  the  relation  of  aggregate  or 
general  demand  and  aggregate  or  general  supply  to 
each  other  is  not  at  all  affected  by  the  employment 
of  a  circulating  medium.1 

Goods  and  money  are  insensate  things,  and  are 
incapable  of  making  demand  upon  each  other.  The 
demand  is  made  and  can  only  be  made  by  men,  and 
back  of  this  demand  is  desire.  What  causes,  such 
as  necessity,  fashion,  fancy,  taste,  caprice,  etc., 
stimulate  this  desire  are  immaterial  here.  The  pro- 
position of  Mr.  Mill,  then,  comes  to  this,  that  all 
men  who  have  goods  for  sale  are  demanding  from 
its  holders  all  the  money  in  existence ;  and  the  hold- 
ers of  all  the  money  are  demanding  from  the  holders 
all  the  supply  of  goods.  Now  this  is  simply  an  im- 
possible situation.  The  same  persons  who  hold  all 
the  goods  for  sale,  or  the  supply  of  goods,  are  those 
who  also  hold  the  supply  of  money  offered  for  sale, 

1  See  this  subject  exhaustively  dealt  with  in  Political  Economy,  by 
J.  E.  Cairnes,  Part  I.,  chap.  ii. 


THE   QUANTITY   THEORY  69 

and,  under  this  doctrine,  if  all  the  persons  who  held 
goods  were  demanding  all  the  money  in  supply,  then 
every  person  would  be  demanding  his  own  money 
as  well  as  that  of  others.  If  it  be  said  that  each 
individual  is  demanding  every  other  individual's 
money  in  exchange  for  the  goods  he  offers  for  sale, 
then  this  is  an  individual  demand  by  the  holder  of 
particular  goods  for  the  exchange  of  his  goods  for 
money,  but  this  individual  demand  for  particular 
commodities,  however  much  it  may  affect  the  prices 
of  the  particular  commodities,  has  no  effect  what- 
ever on  general  prices. 

Mr.  Mill's  doctrine,  carried  out  to  its  conclusion, 
would  be  that,  as  the  whole  of  the  goods  in  market 
compose  the  whole  demand  for  money,  and  the 
whole  of  the  supply  of  money  is  the  demand  for  all 
the  goods,  whenever  the  supply  of  money  is  in- 
creased there  will  be  an  increased  demand  for  goods, 
which  will  raise  their  prices,  and  the  reverse  would 
take  place  if  the  supply  of  money  were  diminished ; 
and  again,  if  the  whole  supply  of  goods  were  in- 
creased, this  would  increase  the  demand  for  money, 
and  prices  would  fall,  and  the  reverse  would  take 
place  if  the  supply  of  goods  were  diminished.  But 
as  an  aggregate  or  general  demand  by  all  the  goods 
upon  the  market  upon  all  the  supply  of  money,  or 
the  aggregate  or  general  demand  of  all  the  money 
on  all  the  goods  in  the  market  is  an  impossibility, 
it  follows  that  the  whole  doctrine  must  fall,  and 
that  all  results  claimed  to  flow  from  it  must  also  fall 
with  it. 

Mr.    Mill   has  himself  so  qualified  the   doctrine 


70         NATURE,  USES,  AND   VALUE   OF   MONEY 

that  very  little,  if  anything,  is  left  of  it.     One  of  his  N 
qualifications   is  the  influence  of  credit   on  prices;^ 
another,  "  whatever  may  be  the  quantity  of  money  ^ 
in  the  country,  only  that  part  of  it  will  affect  prices^ 
which  goes  into  the  market  of  commodities,  and  is 
there  actually  exchanged  against  goods."     But  this 
is  far  from  being  a  general  demand  by  money  upon^- 
all  goods,  or  a  general  demand  by  all  goods  upon  all\ 
money,   for  it   only  relates  to  particular  sales  and 
purchases    of   particular    commodities   which    have 
been    actually   exchanged    for  money.     Qualifying 
the  general  demand  to  the  actual  sales  and  purchases 
of  commodities,  is  the  same  thing  as  saying  that 
there  is  no  such  general  demand.      Mr.  Mill  finally 
ends  the  chapter  by  using  the  following  language : 

"  The  sequel  of  our  investigation  will  point  out  many 
other  qualifications  with  which  the  proposition  must  be 
received,  that  the  value  of  the  circulating  medium  de- 
pends on  the  demand  and  supply,  and  is  in  the  inverse 
ratio  of  the  quantity;  qualifications  which,  under  the 
complex  system  of  credit  like  that  existing  in  England, 
render  the  proposition  an  extremely  incorrect  expression 
of  the  fact." 

If  the  proposition  is  an  extremely  incorrect  expres- 
sion of  the  fact,  the  proposition  itself  must  be 
incorrect. 

§  5.  Returning  again  to  the  theory  as  promul- 
gated by  Ricardo.  It  will,  probably,  simplify  the 
question  if  we  consider  it  as  if  there  were  but  one 
kind  of  money  in  circulation — gold,  for  instance; 
and  we  will  therefore  assume  for  the  present  that 


THE    QUANTITY   THEORY  /I 

gold  coin  is  the  only  money  in  circulation.  If  we 
find  that  the  quantity  of  money  does  not  control  or 
influence  prices  where  the  circulating  medium  is 
wholly  of  gold,  then,  of  course,  the  conclusion  would 
be  the  same  if  the  circulating  medium  were  wholly 
of  silver,  or  partly  of  gold  and  partly  of  silver. 

This  is  self-evident,  for  the  kind  or  character  of 
the  metal,  or  metals,  used  as  money,  whether  one 
or  more,  cannot  have  any  different  effect  on  prices 
than  gold  alone  would  have,  unless  the  money  of 
the  other  metals  is  depreciated  on  account  of  causes 
relating  to  the  metals  themselves,  or  on  account  of 
the  debasement  of  the  coin.  And  if  the  quantity 
of  money  in  circulation  has  no  effect  or  influence 
upon  prices  where  the  circulating  medium  is  wholly 
of  gold,  then  the  result  would  be  the  same  where 
the  circulating  medium  was  wholly  of  convertible 
paper  money,  or  partly  of  gold  and  partly  of  paper 
money.  This  also  is  self-evident ;  for  if  the  quantity 
of  gold  money  has  no  influence  upon  prices,  paper 
money  cannot  have  any,  because  it  is  the  mere  rep- 
resentative of  gold  money,  and,  as  such  a  representa- 
tive, it  cannot  have  any  greater  power  than  gold,  its 
principal.  And  so  the  result  would  for  the  same 
reasons  be  the  same  if  the  circulating  medium  were 
made  up  of  gold,  silver,  and  paper  money.  Assum- 
ing, then,  for  the  present  that  gold  coin  is  the  only 
money  in  circulation,  we  proceed  with  the  argument. 

As  above  stated,  the  quantity  of  money  is  made 
up  of  dollars.  Now  it  is  conceded  by  all  that 
money,  that  is,  dollars,  is  the  measure  of  value,  in 
terms  of  which  the  prices  of  commodities  are  ex« 


72          NATURE,  USES,  AND   VALUE    OF   MONEY 

pressed.  Under  this  quantity  theory  it  would  seem 
that  the  more  measures  of  value  we  have  outstand- 
ing or  in  the  market,  the  more  we  will  increase 
general  prices  and  the  more  we  will  decrease  the 
value  of  the  measure,  that  is,  the  value  of  money 
and  of  gold. 

I  must  request  the  reader  to  recall  the  caution 
given  in  the  first  chapter,  to  wit :  that  coined  money 
remains  after  coinage  the  same  commodity  in  the 
state  of  coin  as  it  was  in  a  state  of  bullion.  This 
being  so,  how  can  the  quantity  of  the  coin,  be  it 
much  or  little,  control  the  value  of  the  whole  stock 
of  the  metal  ?  According  to  this  theory,  the  greater 
the  number  of  pieces  of  gold  stamped  and  in  circu- 
lation, the  less  will  be  the  value  of  both  the  uncoined 
and  coined  gold ;  that  is  to  say,  the  greater  the 
number  of  pieces  into  which  the  supply  of  gold  is 
divided,  the  greater  will  be  the  decrease  of  the  value 
of  gold ;  notwithstanding  the  fact  that  gold  loses 
nothing  by  being  divided  into  any  number  of  pieces, 
and  the  very  fact  of  its  quality  of  divisibility  with- 
out loss  is  the  chiefest  of  its  recommendations 
for  use  as  money.  Now  these  political  economists 
would  not  make  the  same  claim  with  regard  to 
any  other  commodity.  If,  for  instance,  a  portion 
of  the  stock  of  wheat  were  divided  and  put  into 
bushel  sacks,  with  the  weight  and  quality  of  the 
wheat  stamped  on  each  sack,  none  of  these  gen- 
tlemen would  argue  that  the  more  or  the  greater 
the  quantity  of  wheat  which  was  divided  into 
sacks,  the  more  or  the  greater  would  be  the  decline 
in  the  price  and  in  the  purchasing  power  of  wheat, 


THE   QUANTITY   THEORY  73 

and  they  would  ridicule  any  such  proposition,  and 
yet  this  is  precisely  the  position  they  take  with  re- 
gard to  the  commodity  gold,  under  this  quantity 
theory.  Their  fundamental  error  lies  in  this:  that 
while  they  do  not  say  so  in  express  terms,  still  they 
treat  the  pieces  of  gold  which  have  been  stamped, 
whose  weight  and  fineness  are  certified,  as  an  entirely 
different  commodity  than  the  commodity  of  gold. 
This  is  obvious  from  the  fact  that  it  is  claimed  under 
this  theory  that  the  quantity  of  money  controls  the 
price  and  purchasing  power  of  bullion  or  uncoined 
gold,  and  that  bullion  or  uncoined  gold  has  no  effect 
whatever  on  the  prices  of  commodities.  If  money 
were  not  treated  as  a  different  commodity  from  gold, 
it  could  not  have  these  effects,  or,  in  other  words,  if 
the  coined  gold  were  treated  as  the  same  commodity 
as  gold  in  a  state  of  bullion,  it  could  not  be  said 
that  the  quantity  of  coined  gold  controlled  the  value 
of  the  uncoined  gold,  for  that  would  be  making  a 
part  of  the  supply  of  gold  fix  and  control  the  price  and 
value  of  the  whole  supply.  But  although  Ricardo, 
in  considering  this  quantity  theory,  treats  coined 
gold  as  a  different  commodity  than  gold  itself,  yet 
he  at  other  times  treats  coined  and  uncoined  gold  as 
the  same  commodity.  In  speaking  of  the  injustice 
of  the  law,  then  in  force,  prohibiting  the  melting 
and  exportation  of  coin,  Reply  to  Bosanquet,  etc., 
Works,  p.  326,  he  says : 

"  If  the  law,  however,  could  be  effectually  enforced, 
it  would  be  attended  with  the  most  cruel  injustice.  Why 
should  not  the  holder  of  an  ounce  of  gold  in  coin  have 


74         NATURE,  USES,  AND   VALUE   OF    MONEY 

the  same  advantage  from  the  increase  of  the  value  of  his 
property  as  the  holder  of  an  ounce  of  uncoined  gold  ? 
From  the  mere  circumstance  of  its  having  had  a  stamp  put 
on  it,  is  he  to  be  made  to  suffer  all  the  inconveniences 
from  the  fall  in  the  value  of  his  gold,  in  consequence  of 
the  opening  of  new  mines  or  from  any  other  circum- 
stances, and  derive  none  of  the  benefits  which  may  result 
from  a  rise  in  its  value  ?  ' ' 

and  the  same  sentiment  is  repeated  in  Proposals  for 
an  Economical  and  Secure  Currency,  Works,  p.  403. 
This  certainly  shows  that  Ricardo  considered  the 
coined  and  uncoined  gold  as  one  and  the  same  com- 
modity, and  that  they  are  one  and  the  same  commo- 
dity has  been  demonstrated  beyond  question,  and, 
since  the  quantity  theory  is  based  upon  the  error 
that  coined  gold  is,  in  fact,  a  different  commodity 
from  gold  itself,  it  follows  that  the  whole  theory  is 
erroneous,  or,  as  Mr.  Mill  puts  it,  it  is  an  extremely 
incorrect  expression  of  the  fact.  It  is  therefore  safe 
to  say  that  there  is  no  such  theory  in  use  or  practice. 
One  thing  is  certain,  that  if  this  quantity  theory 
be  correct,  and  if  it  be  true  that  the  more  or  the 
greater  the  number  of  pieces  of  gold  there  are  in 
circulation,  the  greater  is  the  decline  or  fall  in  the 
value  of  gold,  then  the  other  theory,  that  the  use  of 
the  precious  metals  as  money  creates  such  a  demand 
for  them  as  will  cause  an  increase  in  their  prices  and 
in  their  purchasing  power,  must  be  incorrect ;  under 
the  latter  theory,  the  greater  the  amount  or  the 
greater  the  number  of  pieces  of  the  metal  which  is 
used  as  money,  the  greater  will  be  the  demand  for 
the  metal,  and  consequently  the  greater  will  be  the 


THE   QUANTITY   THEORY  75 

increase  of  its  price  and  purchasing  power;  but, 
under  the  former  theory,  the  greater  the  amount  of 
a  precious  metal  which  is  used  as  money,  the  greater 
will  be  the  decline  or  fall  in  the  value  of  both  the 
money  and  the  metal.  It  will  thus  be  seen  that 
the  two  theories  are  entirely  contradictory  and 
irreconcilable.  Both  theories  cannot  be  correct.  If 
the  one  theory  is  right,  then  the  other  must  be 
wrong. 

It  is  not  at  present  my  purpose  to,  nor  is  it  neces- 
sary that  I  should,  enter  into  a  full  and  complete 
exposition  of  credit  and  the  credit  system,  from  the 
simple  book  credit  on  through  bills  of  exchange, 
promissory  notes,  bank  checks,  banks,  and  clearing- 
houses. The  effect  of  credit  on  prices  is  the  same 
as  the  effect  of  causes  relating  to  a  particular  com- 
modity, or  commodities,  on  the  price  or  prices  of 
these  particular  commodities,  that  is,  the  increased 
demand  for,  or  the  decreased  supply  of,  the  particu- 
lar commodity  will  cause  a  rise  or  fall  in  its  price. 
Credit  stimulates  demand  for  commodities  to  a  most 
extraordinary  degree,  and  the  increased  demand 
causes  an  increase  of  prices,  but  in  either  case  it  is 
the  increased  demand  which  causes  the  increase  in 
price.  The  fact  that  the  increase  of  prices  of  com- 
modities on  account  of  an  increased  demand  stimu- 
lated by  credit  is  so  much  more  general  and  extensive 
than  in  the  case  of  an  increase  in  the  price  of  a 
particular  commodity  by  reason  of  an  increased  de- 
mand for  it,  is,  I  presume,  the  reason  why  the  in- 
crease of  prices  in  the  one  case  is  classed  separately, 
and  is  distinguished  from  the  other  case.  That 


76    NATURE,  USES,  AND  VALUE  OF  MONEY 

credit  has  a  most  extraordinary  effect  on  the  prices 
of  commodities  is  conceded  by  all.  At  least  ninety 
per  cent,  of  all  sales  and  purchases  of  commodities 
and  of  all  payments  are  effected  by  means  of  credit, 
and  without  the  actual  handling  of  a  single  dollar  of 
either  gold,  silver,  or  paper  money. 

It  is  the  rise  or  the  fall,  or,  as  it  is  usually  ex- 
pressed, the  expansion  or  contraction,  of  credit 
which  causes  the  increased  or  the  decreased  de- 
mand for  commodities,  and  which  consequently  in- 
creases or  decreases  the  prices,  so  far  as  the  prices 
are  affected  by  credit.  Let  us  take  a  time  of  de- 
pression, stagnation  in  business,  and  of  low  prices 
just  after  a  panic  or  commercial  crisis.  For  a  time 
people  heed  the  warning  of  the  past,  and  decline 
to  enter  into  any  business  ventures  of  any  kind, 
but  man's  necessities  and  his  desire  to  accumulate 
wealth  impel  him  to  do  something,  and  to  en- 
deavor to  increase  the  scope  of  his  business  trans- 
actions. Besides  all  this,  all  men  are  more  or  less 
imbued  with  a  spirit  of  speculation,  and  with  many 
this  spirit  really  amounts  to  a  propensity  for  gam- 
bling. Under  these  circumstances  it  is  impossible 
that  man  should  remain  quiescent  for  any  con- 
siderable length  of  time,  and  so,  on  account  of  the 
prevailing  low  prices  at  the  time  mentioned,  first 
one  man  thinks  he  sees  an  opportunity  to  increase 
his  fortune  by  purchasing  and  again  selling  a  par- 
ticular commodity,  and  then  another  man  sees  the 
same  with  some  other  commodity,  and  so  on,  until 
the  greater  part  of  commodities  are  made  the  objects 
of  purchase,  Now  this  purchasing  of  commodities 


THE   QUANTITY   THEORY  77 

creates  a  demand,  and  a  consequent  increase  of  prices, 
and  the  more  the  prices  increase  the  more  persons  are 
desirous  of  purchasing,  for  people  are  always  more 
desirous  of  purchasing  on  a  rising  than  on  a  falling 
market.  Under  these  circumstances  of  a  continual 
rising  of  prices,  dealers  will  use  all  the  purchasing 
power  at  their  command  in  or  for  the  purchase  of 
goods,  with  the  expectation  of  selling  them  at  an 
advanced  price,  and  the  purchasing  power  which  a 
man  in  this  state  of  affairs  uses  is  credit.  Since 
business  improves,  or  seems  to  improve,  on  account 
of  rising  prices,  trade  is  said  to  be  good  (booming), 
and,  naturally,  credit  expands  with  the  increase  of 
trade  and  the  general  expansion  of  business,  so  that 
any  man  who  has  been,  or  who  is  supposed  to  have 
been,  successful  in  his  speculations  in  commodities 
can  command  all  the  credit  he  wants,  and  so  he  goes 
on  under  this  stimulus  of  credit  to  increase  his  pur- 
chases and  thus  increase  the  demand,  and,  conse- 
quently, the  prices.  Now  all  this  increase  of  prices 
is  wholly  independent  of  the  quantity  of  money  in 
circulation.  The  quantity  of  money  has  no  influ- 
ence whatever  in  this  rise  of  prices.  Under  these 
circumstances  the  prices  would  rise  through  the  in- 
fluence of  credit,  even  though  at  the  same  time  the 
quantity  of  money  had  actually  decreased.  And  so, 
under  the  stimulating  influence  of  credit,  prices  rise 
higher  and  higher,  and  this  increased  demand  and 
rise  in  prices  correspondingly  increases  production 
until  the  shock  comes,  when  the  bubble  bursts,  and 
all  at  once  credit  is  contracted.  This  shock  may 
be  something  most  remote  from  the  transactions  or 


78         NATURE,  USES,  AND   VALUE   OF   MONEY 

dealings  in  commodities.  It  may  be  a  bank  failure 
in  England  or  in  the  United  States  or  away  off  in 
Australia.  It  may  be  a  rumor  of  war,  or  what  not, 
but  whatever  it  is  it  has  the  effect  of  suddenly  con- 
tracting credit,  because  every  person  is  conscious  of 
the  fact  that  prices  have  been  increased  far  above 
their  natural  level,  or  what  they  would  have  been 
under  a  healthy  state  of  business.  Therefore,  as 
soon  as  the  shock  comes,  credit  is  immediately  con- 
tracted, and  the  result  is,  that  although  the  supply 
of  commodities  has  actually  increased,  by  reason  of 
the  increased  production  before  the  shock,  there  is 
no  demand  at  all,  because  all  the  stimulus  to  demand 
has  been  extinguished,  and,  consequently,  prices 
fall,  and  generally  they  fall  far  below  their  natural 
level.  The  quantity  of  money  has  also  nothing  to 
do  with,  and  has  had  no  influence  whatever  upon, 
this  fall  in  prices.  Under  the  circumstances  stated, 
the  fall  in  prices  would  have  occurred,  even  though 
the  quantity  of  money  were  actually  and  largely  in- 
creased. Since,  however,  what  we  may  call  credit 
prices  are  expressed  in  terms  of  money,  it  follows 
that,  if  the  money  in  use  be  depreciated  below  the 
value  of  the  commodity  selected  as  the  standard  of 
value,  the  credit  prices  will  be  expressed  in  a  corre- 
spondingly greater  amount  of  that  money,  and  as  all 
the  money  in  use  is  rated  in  the  value  of  that  com- 
modity selected  as  the  standard  of  value,  it  further 
follows  that  these  credit  prices  will  be  expressed  in 
a  greater  or  less  amount  of  money  according  to  the 
variations  in  the  value  of  the  standard ;  but  this  in 
no  wise  affects  the  principles  above  laid  down  as  tc 


THE   QUANTITY   THEORY  79 

the  rise  or  fall  of  prices  being  influenced  by  an  ex- 
pansion or  a  contraction  of  credit,  for,  in  whatever 
amount  of  money  these  credit  prices  may  be  ex- 
pressed, the  rise  or  the  fall  of  prices  would  still  be 
the  effect  of  the  expansion  or  contraction  of  credit, 
and  it  would  not  be  the  quantity  but  the  quality 
of  the  money  which  would,  apparently,  cause  this 
rise  or  fall  in  prices,  so  far  as  such  fall  or  rise  is  at 
all  influenced  by  money.  Even  if  the  quantity  of 
money  has  any  influence  upon  prices,  such  influence, 
as  compared  with  that  of  credit,  is  insignificant. 

Experience  corroborates  all  that  is  here  urged 
against  the  quantity  theory,  and  it  is  only  necessary 
to  refer  to  one  instance,  which  is  within  the  recollec- 
tion of  every  person,  and  which  is  so  much  in  point 
that  it  cannot  be  regarded  otherwise  than  as  conclu- 
sive. From  1878  to  1893  the  money  of  this  country 
was  almost  doubled  in  amount  or  quantity  by  the 
coinage  of  silver  dollars,  the  issue  of  silver  certifi- 
cates and  Treasury  notes  of  1890,  and  yet,  to  the 
great  surprise  of  many  persons  who  had  predicted 
that  prices  must  of  necessity  rise  in  consequence  of 
such  increase  of  money,  the  prices  did  not  rise  at  all, 
but  rather  fell;  indeed,  many  prominent  economists 
and  statesmen  insist  that  prices  were  continuously 
falling.  The  refusal  of  prices  to  rise  in  response  to 
the  increase  of  money  should  not  have  occasioned 
any  surprise  whatever.  If  those  who  predicted  a 
rise  of  prices  in  consequence  of  such  increase  of 
money  had  only  suspended  their  opinion  until  they 
had  reflected,  ever  so  little,  over  the  situation,  they 
would  have  known  that,  inasmuch  as  gold  was  the 


80         NATURE,  USES,  AND   VALUE   OF   MONEY 

standard  of  value,  and  that  all  the  increased  money 
was  maintained  at  par  with  gold,  there  could  be  no 
consequent  increase  in  prices.  Against  such  a  con- 
clusive fact,  all  theory  and  argument  to  the  contrary 
must  be  powerless,  and  this  one  actual  fact  will  ever 
stand  as  a  complete  and  entire  refutation  of  the 
whole  quantity  theory. 

Although  it  is  not  so  stated  in  express  terms,  yet 
the  effect  of  this  quantity  theory  is  to  constitute  the 
unknown  proportion  between  the  value  of  the  quan- 
tity of  money  and  the  commodities  which  it  has  to 
circulate,  or  the  payments  which  it  has  to  make,  as 
the  standard  of  value ;  for  this  proportion  controls 
the  value  of  the  money  which  is  the  measure  of  value ; 
and  it  is  impossible  to  imagine  a  more  indefinite,  in- 
tangible, uncertain,  and  unstable  standard.  The  pro- 
portion is  unknown,  and  it  varies  (i)  upon  an  increase 
of  the  quantity  of  money,  (2)  upon  a  decrease  of  the 
quantity  of  goods  it  has  to  circulate,  (3)  upon  a  de- 
crease of  the  quantity  of  money,  (4)  upon  an  increase 
of  the  quantity  of  commodities  it  has  to  circulate, 
(5)  on  the  value  of  the  money  which  depends  upon 
its  quantity,  (6)  on  the  quantity  of  the  money  which 
depends  upon  its  value,  (7)  on  the  rapidity  of  the 
circulation  of  the  money,  (8)  on  the  degree  of  econ- 
omy practised  in  the  use  of  it,  and  (9),  above  all, 
upon  judicious  banking. 

It  has  already  been  shown  that  the  commodity 
gold  is  the  standard  of  value.  If  it  is  so,  then  a 
proportion  between  the  value  of  the  quantity  of 
money  and  the  quantity  of  goods  it  has  to  circulate 
cannot  be  the  standard,  for  there  cannot  be  two 


THE   QUANTITY   THEORY  8 1 

standards  of  value,  hence  one  or  the  other  is  not  the 
standard.  That  the  proportion  between  the  value 
of  the  quantity  of  money  and  the  value  of  the  quan- 
tity of  goods  the  money  has  to  circulate,  or  the 
quantity  of  money  is  not  the  standard  of  value, 
Ricardo  himself  proves,  and  therefore  it  is  unneces- 
sary for  me  to  enter  into  any  extended  argument  in 
order  to  show  that  it  is  not.  Ricardo,  when  he 
wished  to  show  the  depreciation  of  bank  notes  in 
England  during  the  restriction,  did  not  attempt  to 
prove  such  depreciation  by  any  proportion  which 
the  quantity  of  money  bore  to  the  commodities  it 
had  to  circulate,  or  by  the  quantity  of  money.  He 
did  nothing  of  the  kind,  but  he  compared  the  value 
of  that  paper  money  with  the  standard  measure  of 
value,  gold.  In  his  Political  Economy,  Works,  p. 
57,  he  says: 

'The  extensive  use  of  paper  money  does  not  alter 
this  question,  for  paper  money  conforms,  or  ought  to 
conform,  to  the  value  of  gold,  and  therefore  its  value  is 
influenced  by  such  causes  only  as  influence  the  value  of 
that  metal." 

In  his  Reply  to  Mr.  Bosanquet,  etc.,  Works,  p. 
332,  he  says: 

"  The  value  of  a  bank  note  is  ascertained,  not  by  the 
number  of  transactions  which  may  take  place  in  the 
purchase  or  sale  of  gold,  but  by  the  actual  comparative 
value  of  the  note  with  the  value  of  the  coin  for  which  it 
professes  to  be  a  substitute. 

"  How  would  Mr.  Bosanquet  calculate  the  deprecia- 

6 


82    NATURE,  USES,  AND  VALUE  OF  MONEY 

tion  of  such  forced  notes  but  by  a  comparison  of  their 
value  with  the  value  of  bullion  ? " 

Reference  is  also  made  to  the  quotations  in  the 
last  preceding  chapter.  In  the  following  quotations, 
which  are  all  taken  from  his  essay  on  Proposals  for 
an  Economical  and  Secure  Currency,  although  he 
seems  to  treat  both  gold  and  silver  as  the  standard 
of  value,  yet  it  is  perfectly  manifest  that  he  does  not 
consider  a  proportion  between  the  quantity  of  money 
and  the  quantity  of  commodities,  or  the  quantity  of 
money  as  the  standard  of  value.  It  is  submitted 
that  his  remarks  quoted  utterly  exclude  any  such 
theory.  In  Works,  p.  397,  he  says: 

"  No  plan  can  possibly  be  devised  which  will  maintain 
money  at  an  absolutely  uniform  value,  because  it  will 
always  be  subject  to  those  variations  to  which  the  com- 
modity itself  is  subject,  which  has  been  fixed  upon  as 
the  standard. 

"  While  the  precious  metals  continue  to  be  the  stand- 
ard of  our  currency,  money  must  necessarily  undergo 
the  same  variations  in  value  as  those  metals." 

On  page  402,  he  further  says : 

"  While  a  standard  is  used,  we  are  subject  to  only  such 
a  variation  in  the  value  of  money  as  the  standard  itself  is 
subject  to;  but  against  such  variation  there  is  no  pos- 
sible remedy,  and  late  events  have  proved  that,  during 
periods  of  war,  when  gold  and  silver  are  used  for  the 
payment  of  large  armies  distant  from  home,  those  varia- 
tions are  much  more  considerable  than  has  been  generally 
allowed.  This  admission  only  proves  that  gold  and 


THE    QUANTITY   THEORY  83 

silver  are  not  so  good  a  standard  as  they  have  been 
hitherto  supposed.  .  .  .  They  are,  however,  the 
best  with  which  we  are  acquainted.  .  .  .  While 
these  metals  are  the  standard  the  currency  should  con- 
form in  value  to  them,  and  whenever  it  does  not,  and 
the  market  price  of  bullion  is  above  the  mint  price,  the 
currency  is  depreciated.  This  proposition  is  unan- 
swered, and  is  unanswerable." 

And  still  further,  on  page  404,  he  says  : 

"  To  secure  the  public  against  any  other  variations  in 
the  value  of  the  currency  than  those  to  which  the  stand- 
ard itself  is  subject,  and  at  the  same  time  to  carry  on  the 
circulation  with  a  medium  the  least  expensive  is  to 
attain  the  most  perfect  state  to  which  a  currency  can  be 
brought." 

Gold  being  the  standard  of  value,  it  follows  that 
the  quantity  of  money  is  not  the  standard,  and, 
consequently,  that  the  quantity  of  money  has,  and 
can  have,  no  influence  on  prices,  unless  the  money 
be  depreciated. 


1 


CHAPTER  VI 

DOES  THE  USE  OF  A  PRECIOUS  METAL  AS  MONEY 
CREATE  SUCH  A  DEMAND  FOR  THAT  METAL 
AS  WILL  CAUSE  A  RISE  IN  ITS  MARKET  PRICE, 
AND  AN  INCREASE  IN  ITS  PURCHASING  POWER  ? 

§  i.  HERE  again  I  find  myself  in  opposition  to 
the  generally  accepted  theory,  for,  undoubtedly,  the 
generally  accepted  theory  is,  that  the  use  of  a  pre- 
cious metal  as  money  creates  such  a  demand  for  the 
metal  as  will  cause  an  increase  in  both  its  market 
price  and  in  its  purchasing  power;  or,  as  it  is  usually 
expressed,  that  the  monetary  demand  for  the  metal 
increases  its  value;  but  I  must  demur  to  it.  I  do 
so  with  regret,  but  it  cannot  be  helped,  as  I  must 
go  wherever  my  reasoning  takes  me.  The  re- 
sults of  the  accepted  theory  are  that  the  use  of  a 
metal  as  money  increases  its  value,  and  that,  conse- 
quently, the  suspension  of  its  use  as  money  causes 
a  decline  in  its  value.  The  application  at  present 
made  of  this  accepted  theory  is  that  Germany,  by 
reason  of  having,  in  1873,  made  gold  its  primary 
money,  and  silver  only  a  subsidiary  money,  or,  as  it 
is  generally  called,  demonetized  silver,  which,  being 
followed  by  the  suspension  of  the  private  coinage 
of  silver  in  the  nations  composing  the  Latin  Union, 
— France,  Belgium,  Italy,  Switzerland,  and  Greece, 

84 


MARKET   PRICE   OF   PRECIOUS   METALS          85 

— caused  the  great  decline  or  fall  in  the  price  of 
silver  since  1873.  There  is  something  a  little  pecu- 
liar about  this  accepted  theory.  Of  all  the  writers 
I  have  consulted,  but  a  very  few  mention  the  fact 
that  the  use  of  a  metal  as  money  creates  such  a  de- 
mand as  will  increase  its  price  and  purchasing  power, 
but  those  who  do  mention  it  do  not  offer  a  single 
reason  or  fact  to  support  it.  The  remaining  authors 
simply,  tacitly,  accept  the  theory  without  even  so 
much  as  taking  the  trouble  to  state  that  there  is 
such  a  theory.  So  far  as  my  investigations  have  ex- 
tended, the  theory  seems  to  rest  on  bare  assumption. 

§  2.  For  the  purpose  of  this  investigation  we  will 
at  present  consider  that  gold  is  the  metal.  This 
will  simplify  matters,  and  will  exemplify  the  argu- 
ment as  well  as  if  we  considered  both  gold  and 
silver,  for  the  same  reasoning  which  applies  to  gold 
applies  to  silver. 

It  is  generally  conceded  that  stamping  a  certificate 
of  its  weight  and  fineness  upon  a  piece  of  gold  does 
not  increase  its  value.  If  coinage  could  increase  the 
value  of  the  metal,  then  the  government  could,  by 
stamping  a  piece  of  copper  of  the  same  weight  as 
the  weight  of  the  gold  in  a  gold  dollar,  and  calling 
this  piece  of  copper  a  dollar,  make  this  piece  of 
copper  of  the  same  value  as  a  gold  dollar. 

Our  government,  in  its  statements  of  the  amount 
of  gold  in  the  Treasury,  reports  coin  and  bullion  in- 
discriminately, and,  if  the  holder  of  coin  wished  to 
convert  it  into  bullion,  he  would  only  receive  the 
same  weight  of  gold  in  bullion  as  the  weight  of 
the  gold  in  the  coin, — no  more,  no  less. 


86    NATURE,  USES,  AND  VALUE  OF  MONEY 

If  coin  is  exported,  it  is  only  at  the  bullion  price; 
coinage  adds  nothing  whatever  to  its  value. 

If  one  kind  of  money  be  withdrawn  from  circula- 
tion on  account  of  the  depreciation  of  another  kind 
of  money  in  concurrent  use  with  it,  as,  for  instance, 
if  both  gold  and  silver  dollars  were  equally  a  legal 
tender,  at  a  certain  ratio,  and  the  silver  dollar  were 
to  become  depreciated  fifty  per  cent,  below  the 
value  of  the  gold  dollar,  gold  coin  would  immediately 
be  withdrawn  from  the  circulation,  and  would  either 
be  hoarded  or  sold  the  same  as  uncoined  gold,  or, 
as  it  is  generally  expressed,  the  coined  gold  would 
become  merchandise;  but  the  term  "  merchandise  " 
is  unfortunate  in  this  connection,  because  it  conveys 
the  idea  that  the  coin  while  in  circulation  was  some- 
thing else  than  merchandise,  whereas,  in  truth,  gold 
is  merchandise,  a  commodity,  whether  it  be  in  a 
state  of  coin  or  in  a  state  of  bullion.  What  really 
takes  place  in  case  of  such  a  depreciation  of  one  kind 
of  money — silver,  for  instance, — is  this :  the  holder  of 
gold  coin  as  soon  as  he  hears  of  the  depreciation 
of  the  silver  money,  knows  that  the  prices  of  all 
commodities  will  at  once  be  increased  to  at  least 
as  much,  if  not  more,  than  the  depreciation  of  the 
silver,  because  dealers  know  they  must  accept  pay- 
ment in  the  depreciated  silver  dollars, — they  being  a 
legal  tender,- — likewise,  all  debts  will  be  paid  in  the 
depreciated  silver  money,  therefore  the  holder  of 
the  gold  coin  simply  refuses  to  sell,  exchange,  or 
part  with  it,  either  in  the  purchase  of  goods,  or  in 
the  payment  of  a  debt,  at  its  mint-rating  with 
silver;  that  is,  he  refuses  to  let  the  gold  in  his  gold 


MARKET   PRICE   OF   PRECIOUS   METALS          87 

dollar  go  at  the  same  value  and  consideration  as  that 
of  the  value  of  the  silver  in  a  silver  dollar;  he  re- 
fuses to  part  with  his  gold  dollar  for  the  same  quan- 
tity of  goods  a  silver  dollar  will  purchase,  or  for  the 
discharge  of  no  more  of  a  debt  than  a  silver  dollar 
will  discharge  (in  short,  gold  refuses  to  allow  itself 
to  be  treated  on  an  equality  with  silver);  and  why 
should  he  not  refuse  to  do  so,  when  he  can  readily 
sell  or  dispose  of  one  gold  dollar  for  two  silver  dol- 
lars, and  with  each  silver  dollar  pay  as  much  of  a 
debt  as  he  can  with  a  gold  dollar  ?  The  holder  of 
gold  coin  will  then  only  sell  it  at  the  market  price 
and  not  at  its  mint-rating  in  silver,  or  dollar  for 
dollar  with  silver.  It  may  be  said  that  it  is  not  the 
fact  of  its  being  coined  which  increases  the  value  of 
the  coin,  but  the  fact  of  its  being  in  circulation. 
But  what  is  meant  by  "being  in  circulation?" 
Nothing  more  than  that  it  is  being  continuously 
offered  for  sale,  or  in  exchange  for  other  commodi- 
ties, and  so  it  is  continued  for  sale,  although  with- 
drawn from  the  circulation,  under  the  circumstances 
above  stated,  and  is  just  as  much  for  sale  or  exchange 
in  the  one  case  as  in  the  other;  but  if  the  gold  coin 
be  so  withdrawn  from  circulation,  the  fact  of  its 
being  coined  does  not  add  anything  whatever  to 
its  value.  It  merely  retains  the  same  value  which 
it  had  while  in  circulation ;  that  is,  the  same  value 
of  an  equal  quantity  of  gold  in  a  state  of  bullion. 

Endowing  gold  coin  with  a  legal-tender  quality 
does  not  add  to  its  value.  If  it  is  sold  or  exchanged 
for  bullion,  it  purchases  or  exchanges  for  no  more 
bullion  than  weight  for  weight.  Coined  gold  will 


88         NATURE,  USES,  AND   VALUE   OF   MONEY 

not  purchase  or  exchange  for  any  more  of  other 
commodities  than  gold  bullion  will,  nor  does  the 
coin  which  is  a  legal  tender  sell  for  any  more  than 
bullion ;  nor  is  its  market  price  any  greater  than  the 
price  of  bullion. 

§  3.  I  must  again  beg  the  reader  to  bear  in  mind 
that  coined  gold  remains,  after  coinage,  the  same 
commodity  as  it  was  in  a  state  of  bullion.  Whether 
gold  is  coined  or  uncoined  it  is  always  the  same 
metal.  Since,  then,  the  value,  quality,  and  char- 
acter of  the  coined  gold  remains  the  same  in  all 
respects  as  that  of  the  uncoined  metal,  it  is  hard  to 
conceive  of  any  reason  why  the  use  of  a  portion  of 
the  gold  metal  as  coin  or  money  should  increase  the 
value  of  the  whole. 

Consumption  is  the  end  of  production;  without 
consumption  there  would  be  no  demand,  and,  con- 
sequently, no  production ;  a  demand  which  will 
effectually  diminish  the  supply  of  a  commodity 
must  be  a  demand  which  is  made  for  the  purpose 
of  consumption.  Until  a  commodity  reaches  the 
hands  of  a  purchaser  who  purchases  it  for  his  own 
use  and  for  his  own  consumption,  the  supply  of  that 
commodity  is  not  diminished,  no  matter  through 
how  many  dealers  it  may  have  previously  passed  for 
sale.  As  long  as  a  commodity  is  in  supply  for  sale, 
the  supply  is  not  diminished.  It  follows,  therefore, 
that,  in  the  end,  it  is  only  a  demand  for  consump- 
tion, without  a  corresponding  increase  of  supply,  or 
an  increase  of  supply  without  a  corresponding  in- 
crease of  the  demand  for  consumption,  which  will 
cause  an  increase  or  a  decrease  in  the  price  or  value 


MARKET   PRICE   OF   PRECIOUS    METALS          89 

of  a  commodity.  The  demand  for  consumption  of 
gold  is  the  demand  for  consumption  in  the  arts — 
plate,  ornaments,  and  the  like, — hoarding,  exporting 
it  to  the  oriental  countries,  or  any  other  demand 
which  will  take  it  out  of  commerce  and  out  of  the 
supply  for  sale.  The  use  of  gold  as  money  is  not 
such  a  demand  for  consumption.  It  is  not  there 
consumed,  unless  it  be  what  is  consumed  or  lost  by 
friction,  and  this  is  so  inconsiderable  as  to  be  un- 
worthy of  notice;  and  this  loss  is  daily  becoming 
less,  on  account  of  the  coin  being  actually  handled 
less  and  less;  besides,  it  is  an  open  question  whether 
just  as  much  is  not  lost  while  the  gold  is  in  a  state 
of  bullion  as  while  it  is  in  a  state  of  coin.  While 
coined  money  remains  in  circulation  it  is  always  and 
continuously  offered  for  sale  or  exchange  for  other 
commodities,  or  for  the  melting-pot,  or  for  con- 
sumption in  the  arts,  or  for  hoarding,  exporting,  or 
any  other  demand  which  will  take  it  out  of  com- 
merce and  out  of  the  supply  for  sale,  and  it  is  just 
as  much  for  sale  for  actual  consumption,  hoarding 
or  exporting,  etc.,  as  that  portion  of  the  gold  which 
is  in  a  state  of  bullion.  In  all  these  respects  there 
is  no  difference  whatever  between  the  uncoined  gold 
and  the  coined  gold  in  circulation.  Being  divided 
into  many  small  portions  neither  increases  nor  di- 
minishes the  value  of  gold,  and  its  passing  through 
many  hands  does  not  increase  or  diminish  its  value, 
or  prevent  it  from  still  being  for  sale  or  exchange. 
Every  man  is  thus  a  dealer  in  coin  or  money. 
Wherefore,  it  is  manifest  that  coined  gold  in  circula- 
tion is  just  as  much  a  part  of  the  supply  of  gold  for 


90         NATURE,  USES,  AND   VALUE   OF   MONEY 

sale  as  that  portion  which  is  in  a  state  of  bullion. 
Both  the  coined  gold  and  the  bullion  constitute  the 
supply  of  gold  for  sale  or  exchange,  and,  hence,  the 
use  of  gold  as  money  cannot  increase  either  its  price 
or  its  purchasing  power. 

§  4.  It  may  possibly  be,  and,  for  the  present,  for 
the  sake  of  the  argument,  we  will  concede  that  where 
two  metals,  such  as  gold  and  silver,  are  used  con- 
currently as  money,  both  having  the  right  of  free 
and  unlimited  coinage  at  a  fixed  ratio,  and  both 
being  a  legal  tender,  the  supply  of  both  metals  may, 
for  monetary  purposes,  be  regarded  as  one  composite 
mass;  the  value  of  this  compound  mass  being  the 
aggregate  of  the  values  of  the  supplies  of  both 
metals,  and  the  value  of  the  money  metal  supply 
being  so  much  increased  in  value,  any  change  in  the 
demand  or  supply  of  either  metal,  and  a  consequent 
increase  or  decrease  in  the  value  of  one  of  the  metals 
would  affect  the  value  of  the  composite  mass  of  both 
metals,  proportionately  less  than  the  value  of  the 
one  metal  alone.  For  instance,  say  that  the  addi- 
tion of  the  supply  of  silver  would  double  the  value 
of  the  mass  of  both  metals,  then  an  increase  or  a 
decrease  in  the  value  of  one  metal  would  only  affect 
the  value  of  the  mass  proportionately  half  as  much 
as  it  affected  the  one  metal ;  but  while  the  proportion 
of  the  variations  might  not  be  so  great,  they  would 
occur  oftener,  because  whenever  either  of  the  metals 
varied  in  value,  the  value  of  money  would  vary. 
But  the  extent  of  the  variations  in  the  value  of  the 
composite  mass  of  both  metals  would  be  less,  not 
because  both  metals  were  used  as  money,  but  the 


MARKET   PRICE   OF   PRECIOUS   METALS          91 

extent  of  the  variations  in  the  value  of  money  would 
be  less,  because  the  extent  of  the  variations  in  the 
value  of  the  composite  mass  of  both  metals  was  less. 

If  both  metals  were  regarded  as  being  in  one  com- 
posite mass  for  any  other  purpose,  and  if  they  were, 
in  fact,  mixed  up  in  one  compound,  the  variations  in 
the  value  of  the  mass  would  not  be  proportionately 
so  great  as  in  the  value  of  one  metal  alone,  though 
the  fall  in  value  was  only  in  the  one  metal,  even 
though  either  one  or  both  of  the  metals  were  not 
used  as  money.  The  use  of  the  metals  as  money 
has,  therefore,  nothing  to  do  with  the  value  of  the 
composite  mass  of  both  metals.  In  any  event  the 
use  of  both  metals  as  money  and  the  regarding  both 
metals  as  being  in  one  compound  mass,  do  not  either 
increase  or  decrease  the  value  of  either  metal.  All 
that  the  treating  of  both  metals  as  one  composite 
mass  can  possibly  do  is  to  proportionately  decrease 
the  extent  of  variations  in  the  value  of  the  composite 
mass,  but  it  can  have  no  effect  whatever  on  the 
actual  variation  in  the  value  of  either  metal. 

Silver  and  gold  are  not  homogeneous.  They  are 
entirely  different  commodities;  each  has  in  a  great 
degree  its  separate  source  of  supply;  each  hag 
its  separate  demand  for  consumption;  each  has  its 
separate  price  and  its  separate  purchasing  power; 
and  the  value  of  each  is  affected  by  the  increase 
or  the  diminution  of  the  demand  for  it,  or  the 
supply  of  it,  without  regard  to  any  increase  or 
diminution  of  the  value  of  the  other.  From  the 
time  of  their  production  until  their  final  consump- 
tion, and  in  their  uses  as  money,  each  flows  in  *» 


Q2         NATURE,  USES,  AND   VALUE   OF   MONEY 

separate  and  distinct  stream  from  the  other;  they 
are  never  united  or  amalgamated,  nor  are  they  ever 
compounded  in  a  composite  mass.  It  is  there- 
fore highly  improper,  under  any  circumstances,  to 
regard  them  as  being  in  a  composite  mass,  for  they 
are  not  so,  and  never  were.  If  the  supply  of  both 
metals  were  actually  melted  together  and  formed 
into  one  composite  mass,  or,  if  even  when  coined 
the  dollar  should  consist  of  a  compound  of  certain 
proportions  of  gold  and  silver,  there  might  be  some 
reason  for  regarding  both  metals  as  being  in  one 
composite  mass;  but  separate  and  distinct  as  both 
metals  are,  and  separate  and  distinct  as  they  are 
maintained  in  their  use  as  money,  it  can  never  be 
proper  to  regard  both  metals  as  being  in  one  com- 
posite mass.  Each  metal  being  a  different  commo- 
dity, each  having  its  own  separate  supply  and 
demand,  independent  of  the  other,  each  having  its 
separate  price  and  purchasing  power,  and  each  being 
kept  separate  and  distinct  from  the  other  in  all  its 
uses,  it  follows  that  the  value  of  that  portion  of  each 
metal  which  is  used  as  money  is  regulated  entirely 
by  the  value  of  metal  out  of  which  the  money  is 
made,  and  that  the  use  of  both  as  money  does  not 
make  the  value  of  both  or  of  either  subject  to  less 
variations  in  value,  or  render  them  more  stable  in 
value.  Wood  and  iron  are  both  extensively  used  in 
the  construction  and  manufacture  of  many  of  the 
same  things,  and  yet  no  one  would  assert  that,  for 
that  reason,  the  price  of  wood  controlled  the  price 
of  iron,  or  that  the  price  of  iron  controlled  that  of 
wood,  nor  would  anyone  contend  that  this  joint  use 


MARKET   PRICE   OF   PRECIOUS    METALS          93 

of  both  commodities  would  throw  both  into  one 
composite  mass,  or  make  both  more  steady  in  price; 
and  let  it  not  be  forgotten  that  this  illustration  is  a 
much  stronger  case  for  the  application  of  the  alleged 
rule  of  the  control  of  prices  than  the  claim  of  the 
use  of  two  metals  as  money  controlling  the  price  and 
value  of  each  is ;  for  in  the  case  put  as  an  illustration 
the  wood  and  iron  are  actually  consumed  and  are 
used  for  that  purpose,  while  in  the  latter  case  there 
is  no  consumption  of  the  metals  and  they  are  not 
used  for  the  purposes  of  consumption,  but  for  the 
purposes  of  sale  and  exchange,  just  as  they  were 
used  in  a  state  of  bullion.  It  must,  therefore,  be 
admitted  that  the  use  of  the  two  metals,  as  money 
on  a  perfect  equality,  does  not  either  increase  or 
decrease  the  value  of  either  metal,  and  hence  the 
conclusion  already  reached,  that  the  use  of  a  precious 
metal  as  money  does  not  increase  either  the  price  or 
the  purchasing  power  of  such  metal,  is  correct. 

§  5.  The  conclusion  herein  arrived  at  is  strongly 
supported  by  history  and  experience. 

During  the  period  1789-1796  the  French  Govern- 
ment issued  large  quantities  of  paper  money  based 
on  the  public  lands;  this  paper  money  was  at  first 
called  assignats,  and  afterwards  mandats  were  issued 
for  the  assignats.  Notwithstanding  the  most  string- 
ent laws,  this  paper  money  depreciated  to  a  most 
fearful  extent.  All  the  specie  was  driven  out  of 
circulation.  It  was  hoarded,  and  its  use  as  money 
prohibited.  But  neither  gold  nor  silver  depreciated 
in  value  although  their  use  as  money  was  entirely 
suspended.  On  the  contrary,  silver,  which  was  the 


94         NATURE,  USES,  AND   VALUE   OF   MONEY 

principal  money  which  had  been  used  as  a  circulating 
medium,  commanded  a  premium,  although  its  pur- 
chase was  punished  by  a  penalty  of  six  years  in  irons. 
The  whole  system  was  demolished  in  1796,  and  a 
new  decree  authorized  every  man  to  transact  busi- 
ness in  the  money  and  on  the  terms  he  chose. 
Mandats  were  only  to  be  taken  at  their  market 
value.  Immediately  specie  appeared  in  circulation  ; 
immense  hoards  came  forth  from  their  hiding-places, 
and  goods  and  commodities  being  very  cheap,  caused 
immense  sums  to  be  imported  from  foreign  coun- 
tries.1 

In  1797,  the  Parliament  of  England  passed  what 
is  known  as  the  restriction  act,  prohibiting  the  Bank 
of  England  from  paying  out  specie.  Specie  pay- 
ments were  thereupon  suspended  in  England  from 
that  time  until  1821,  and  specie  disappeared  entirely 
from  the  circulation.  There  was  much  dispute  at 
the  time,  and  the  dispute  is  not  yet  settled,  as  to 
whether  gold  appreciated  in  value  during  this  sus- 
pension, or  whether  the  paper  currency  had  depre- 
ciated. Writers  and  statesmen  were  divided  into 
two  classes  on  this  question  and  waged  fierce  war- 
fare against  each  other,  but  all  agreed  that  gold  and 
silver,  notwithstanding  the  suspension  of  their  use 
as  money  had  not  depreciated  in  value.  In  1819  an 
act  of  Parliament  was  passed  directing  the  resump- 
tion of  specie  payments;  the  Bank  actually  re- 
sumed specie  payments  in  1821.  The  resumption 
act  had  been  preceded  by  a  very  severe  commercial 
crisis  in  1818,  many  failures  having  occurred.  It  is 
1  See  Money,  by  F.  A.  Walker,  pp.  336-347. 


MARKET   PRICE    OF   PRECIOUS    METALS          95 

claimed  by  some  that  the  large  amount  of  gold  re- 
quired for  the  purpose  of  resumption,  or  rather  the 
increased  demand  for  gold  for  this  purpose,  caused 
an  appreciation  of  gold  and  a  consequent  general 
fall  in  prices.  This  has,  however,  been  as  strenu- 
ously denied  as  it  has  been  asserted.  The  only 
authority  that  there  was  a  decline  of  prices  subse- 
quent to  resumption  is  Jevons;  but,  according  to 
Jevons,  prices  had  reached  their  highest  point  in 
1809,  and  the  decline  was  continuous,  with  varia- 
tions, from  that  time.  Besides,  Jevons  only  gives 
averages,  which  do  not  prove  a  general  fall  of  prices. 
The  commercial  crisis  occurred  in  1818,  and  no 
doubt  the  subsequent  fall  in  prices  was  largely  due 
to  it.  Even  if  there  was  a  fall  in  prices  after  re- 
sumption it  would  by  no  means  follow  as  a  matter 
of  course  that  such  fall  was  the  result  of  resumption, 
or  the  so-called  unusual  demand  for  gold  for  the 
purpose  of  resumption.  England  had  during  the 
war  with  France  advanced  with  wonderful  strides  in 
trade,  inventions,  and  manufactures.  There  was 
also  an  extraordinary  tide  of  speculation.  The  de- 
mands of  the  war  stimulated  the  production  of  all 
supplies  and  war  materials  to  an  unprecedented  ex- 
tent, and,  when  the  war  closed  in  1815,  there  was 
no  longer  any  demand  for  these  supplies  and  ma- 
terials, and  the  result  was  the  usual  reaction  and  the 
stagnation  in  business  until  the  capital  in  the  produc- 
tion of  these  supplies  and  materials  became  diverted 
into  other  channels.  These  facts  in  connection  with 
the  over-trading  are  sufficient  to  account  for  any 
possible  fall  in  prices.  There  was  no  rise  in  the 


96         NATURE,  USES,  AND   VALUE   OF   MONEY 

silver  price  of  gold  after  resumption,  and  the  silver 
price  of  gold  really  fell  after  that  event.  Chevalier 
says:  that  (judging  from  the  price  of  gold  in  Paris) 
the  absorption  of  gold  in  Great  Britain  did  not  ap- 
pear to  make  any  appreciable  change  in  its  price. 
S.  Dana  Horton,  who  endeavored  to  show  that  the 
demand  of  England  for  gold  was  for  the  purpose  of 
resumption,1  seems  to  have  been  unable  to  satisfacto- 
rily account  even  to  himself  for  the  (as  he  says)  slight 
rise  in  the  silver  price  of  gold  (there  was  no  such 
rise  at  all),  and  he  finally  concludes  in  these  words : 

"  He  who  would  judge,  therefore,  of  the  comparative 
permanence  of  value  of  the  two  metals,  must  inquire 
whether  the  average  of  silver  prices  on  the  Continent  fell 
in  the  year  of  resumption  as  the  average  of  gold  prices 
fell  in  England.  It  will  not  be  until  this  question  is 
answered  in  the  affirmative,  that  the  proof  of  the  steadiness 
of  gold  based  upon  the  effects  of  resumption  in  gold  will 
be  discovered.  Until  then  it  remains  an  invention. ' ' — 

Which  is  equivalent  to  admitting  that  until  we 
know  whether  silver  prices  rose  or  fell  on  the  Con- 
tinent, we  will  not  know  whether  the  fall  in  prices  in 
England  was  caused  by  the  appreciation  of  gold  or 
not.  So  it  is  simply  not  proven  by  any  fact  that 
gold  did  appreciate  after  resumption.  The  weight 
of  authority  is  decidedly  against  any  such  conclu- 
sion. Mr.  Tooke,  the  highest  authority  on  prices, 
says,  that  the  then  prices  were  in  consequence  of 
scarcity  and  speculation.8  There  is  one  fact,  how- 

1  See  Silver  and  Gold,  chap,  vii.,  p.  74  et  seq. 
9  See  quotation  cited  by  F.  A.  Walker  in  his  work  entitled  Money, 
p.  362,  note  i. 


MARKET   PRICE   OF   PRECIOUS   METALS          97 

ever,  which  ought  to  be  conclusive  upon  the  question, 
that,  even  if  prices  did  fall  after  resumption,  such 
fall  was  not  on  account  of  the  appreciation  of  gold, 
and  this  fact  is  the  admitted  one,  that  gold  did  not 
depreciate  by  reason  of  the  suspension  of  its  use  as 
money  during  the  restriction.  If  the  claim  that  the 
increased  demand  for  gold  for  resumption  appre- 
ciated the  value  of  gold  be  correct  in  principle,  then 
the  decreased  demand  on  account  of  the  suspension 
should  have  depreciated  the  value  of  gold.  If  the 
principle  be  sound,  it  must  work  both  ways.  If  it  be 
said  that  the  increased  demand  for  use  as  money  will 
appreciate  the  metal,  but  that  the  decreased  demand 
for  the  same  use  will  not  depreciate  the  metal,  what 
becomes  of  the  theory  that  the  demonetization  of 
silver  by  Germany,  and  the  restriction  of  its  coinage 
by  the  Latin  Union,  caused  the  present  depreciation 
of  silver  ?  In  fact,  there  was  no  general  fall  in 
prices  following  resumption.  There  is  but  one  con- 
clusion which  can  be  reached  with  regard  to  the 
effect  of  resumption  in  England,  and  that  is  that 
the  resumption  and  the  additional  demand  for  gold 
for  the  purposes  of  resumption  did  not  appreciate 
the  value  of  gold. 

From  about  1820  to  1850  gold  was  driven  out  of 
the  circulation  in  France  on  account  of  it  being 
rated  too  low  at  the  mint,  the  mint-rating  being  less 
than  the  market  price.  It  is  strenuously  denied 
that  all  the  gold  was  driven  out  of  circulation  in 
France  during  this  period,  but  the  only  fact  brought 
forward  in  support  of  the  denial  is  that  the  French 
mint  continued  to  coin  gold  during  this  period;  and 


98         NATURE,  USES,  AND    VALUE    OF   MONEY 

so  it  did,  but  in  such  greatly  diminished  quantities 
that  it  is  highly  suggestive  that  there  was  very  little, 
if  any  gold,  left  in  the  circulation.  But  the  fact, 
even  if  true,  is  not  pertinent  to  the  issue;  for  the 
reason  that  it  does  not  at  all  follow  that  there  was 
gold  in  circulation  because  gold  was  coined  at  the 
mint.  Every  man  of  middle  age  who  was  living  in 
this  country  during  the  late  civil  war  knows  that 
there  was  not  a  dollar  of  gold  in  circulation — used 
as  money — during  the  whole  period  of  the  suspen- 
sion of  specie  payments,  from  1861-1879,  while  an 
inspection  of  the  mint  reports  show  that  there  was 
far  more  gold  coined  in  this  country  during  the 
suspension  of  specie  payments,  1861-1879,  than  the 
mint  reports  of  France  show  to  have  been  coined 
during  the  period  1820-1850.  The  natural  result 
would  be  that  if  gold  was  underrated  it  would  dis- 
appear from  circulation,  and  the  evidence  of  travel- 
lers in  France,  and  of  French  writers,  is  that  there 
was,  during  the  period  mentioned,  no  gold  in  use  as 
money  in  that  country.  Even  those  who  deny  that 
gold  disappeared  entirely  from  the  circulation  admit 
that  the  quantity  remaining  in  circulation  was  very 
greatly  diminished,  which  is  sufficient  for  our  present 
purposes,  for  it  greatly  diminished  the  monetary 
demand  for  gold.  Gold,  notwithstanding  this  de- 
creased demand  for  it  for  monetary  uses  and  the 
suspension  of  its  use  during  this  period  in  France, 
did  not  depreciate  in  value.  Its  silver  price  did  not 
decrease,  but  rather  increased.  Gold  was  at  a 
premium  during  this  period  in  France;  and  silver, 
notwithstanding  the  increased  demand  for  it  for 


MARKET   PRICE    OF   PRECIOUS    METALS          99 

monetary  uses,  did  not  rise  in  value;  on  the  con- 
trary, it  rather  diminished  in  value.  Neither  was 
there  any  decrease  in  the  purchasing  power  of  gold 
during  this  period. 

In  consequence  of  the  immense  increase  in  the 
production  of  gold,  following  its  discovery  in  Cali- 
fornia and  Australia  during  the  period  of  1851-1866, 
silver  was  driven  out  of  circulation  in  France,  or  at 
least  the  proportion  of  silver  in  circulation  was  very 
greatly  reduced,  and  gold  took  its  place.  The  fact 
that  silver  was  wholly  driven  out  of  the  circulation 
is  denied,  and  the  denial  is  supported  by  the  fact 
that  silver  was  coined  in  France  during  this  period, 
just  as  this  fact  was  presented  in  denial  of  the  claim 
that  gold  had  been  entirely  driven  out  of  the  circu- 
lation during  the  period  1820-1850.  The  same 
reasons  urged  against  the  pertinency  of  this  fact  in 
1820-1850  apply  with  equal  force  to  the  subsequent 
period,  1851-1866,  and  it  is  unnecessary  to  repeat 
them  here.  It  is  not  denied  that  the  quantity  of 
silver  in  circulation  was  greatly  reduced.  Silver  did 
not  fall  in  its  price  nor  in  its  purchasing  power  on 
account  of  the  suspension  of  its  use  as  money  in 
France  during  this  period,  and  this  is  the  important 
point.  It  increased  in  its  market  price  and  was  at 
a  premium  in  France.  It  may  be  that  the  silver 
prices  rose  somewhat,  but,  if  they  did,  the  increase 
of  silver  prices  was  much  less  than  the  increase  of 
gold  prices,  and  the  increase  of  silver  prices  is  easily 
accounted  for  ;  although  the  increase  in  the  produc- 
tion of  gold  far  exceeded  the  increase  in  the  pro- 
duction of  silver,  still  the  increase  in  the  production 


100       NATURE,  USES,  AND   VALUE   OF   MONEY 

z>f  silver  during  this  period  was  almost  double  what 
it  had  been  during  any  former  corresponding  period 
of  time,  and  if  there  was  any  increase  in  silver  prices 
it  was  caused  by  the  increase  of  the  supply  of  silver, 
and  not  by  the  suspension  of  its  use  as  money. 
Certain  it  is  that  gold  did  not,  during  this  period 
(1851-1866),  increase  either  in  its  market  price  or  in 
its  purchasing  power,  so  it  cannot  be  contended  that 
the  increased  use  or  demand  of  gold  for  monetary 
purposes  increased  its  price  or  purchasing  power.  It 
is  quite  natural  to  suppose  that  the  tremendous  in- 
crease in  the  production  of  gold  during  this  period 
would  raise  the  gold  price  of  commodities,  and  it  is 
insisted  by  some  authorities  that  there  was  in  fact 
such  a  rise  in  gold  prices  in  consequence  of  this 
great  increase  in  the  supply  of  gold,  but  this  fact  is 
strenuously  denied  by  equally  as  prominent  and 
reliable  authorities.  Waiving  this  question,  it  is 
sufficient,  for  present  purposes,  to  know  that  silver 
did  not  decline  in  price  or  in  purchasing  power  be- 
cause of  the  suspension  of  its  use  as  money,  and  that 
gold  did  not  rise  in  price  or  in  purchasing  power  on 
account  of  its  increased  use  and  demand  for  mone- 
tary purposes. 

It  has  already  been  mentioned  that  specie  pay- 
ments were  suspended  in  this  country  during  the 
period  1861-1865.  In  1861  there  were  over  $200,- 
000,000  of  gold  in  circulation  in  this  country ;  the 
suspension  took  place  in  December,  1861,  and  there- 
upon every  dollar  of  gold  disappeared  from  cir- 
culation as  if  by  magic.  This  fact  is  within  the 
recollection  of  so  many  persons  that  it  is  sufficient 


MARKET   PRICE   OF   PRECIOUS   METALS        IOI 

to  barely  mention  it,  and  it  cannot  be  successfully 
contradicted.  This  vast  amount  of  gold  was,  then, 
according  to  the  accepted  theory,  thrown  on  the 
markets  of  other  countries,  increasing  their  stock  of 
money,  and,  consequently,  causing  a  depreciation 
of  gold,  and  a  corresponding  appreciation  of  prices 
of  commodities;  but,  unfortunately  for  this  theory, 
there  was  no  depreciation  of  gold  either  in  price  or 
in  purchasing  power. 

When  our  government  in  1879  collected  gold  for 
the  purpose  of  resuming  specie  payments  it  received 
$95 ,500,000  by  the  sale  of  bonds,  and  this  sum,  with 
the  surplus  coin  in  the  Treasury,  made  a  fund  of 
$J 33 ,508, 804. 50  for  resumption;  and  this  sum  ac- 
complished resumption  of  specie  payments,  although 
it  had  been  confidently  predicted  that  it  would  re- 
quire, and  was  afterwards  just  as  confidently  asserted 
that  it  did  require,  over  $1,000,000,000  to  resume, 
and  this  in  the  teeth  of  the  actual  fact  to  the  con- 
trary. The  accumulation  of  coin  for  the  purposes 
of  resumption  and  its  actual  use  for  that  purpose  in 
1879  did  not  appreciate  the  price  or  the  purchasing 
power  of  gold. 

While  tobacco  was  used  as  money  in  Virginia  it 
did  not  increase  its  price  or  purchasing  power. 
Though  it  was  by  law  made  a  legal  tender,  and  the 
only  legal  tender;  though  its  price  was  fixed  by  law, 
its  production  curtailed,  and  everything  else  was 
done  so  far  as  law  could  do  anything  to  maintain  its 
price,  still  tobacco  fell  from  three  shillings  and  six- 
pence per  pound  to  one  pence  per  pound.  Thus 
history  and  experience  abundantly  prove  that  the 


102       NATURE,  USES,  AND   VALUE   OF   MONEY 

use  of  a  precious  metal  or  any  other  commodity  as 
money  does  not  increase  its  price  or  its  purchasing 
power. 

§  6.  It  is  asserted,  with  all  possible  vehemence, 
by  a  class  of  economists  and  statesmen,  that  the  de- 
monetization of  silver  by  Germany,  in  1873,  and  the 
subsequent  partial  suspension  of  the  coinage  of  silver 
in  the  nations  composing  the  Latin  Union  caused 
the  great  fall  in  the  value  of  silver,  which  began  in 
1873  and  has  continued  ever  since.  If,  indeed,  it 
be  true  that  this  fall  in  silver  began  in  1873,  then 
this  fact,  and  the  demonetization  of  silver  by  Ger- 
many, and  the  suspension  of  coinage  of  silver  on 
private  account  by  the  Latin  Union,  must,  in  the 
light  of  history,  experience,  and  reason,  be  regarded 
as  a  coincidence,  and  not  as  cause  and  effect.  It  is 
now  proposed  to  consider  whether  the  acts  of  Ger- 
many and  the  Latin  Union  were  the  cause  of  the 
decline  in  the  price  of  silver.  Taking  a  calm  and 
unimpassioned  view  of  the  whole  question,  it  seems 
impossible  that  these  acts  could  have  had  any  such 
effect.  Certainly  they  could  not  have  any  such  effect 
if  the  conclusion  already  reached  in  this  chapter  be 
correct.  Independent,  however,  of  the  conclusion 
already  reached  in  this  chapter,  I  think  it  can  be 
demonstrated  that  the  action  of  Germany  and  of  the 
States  of  the  Latin  Union  did  not  cause  the  decline 
in  the  price  of  silver.  Germany  retained  a  very 
great  proportion  of  its  silver  in  circulation  which  it 
recoined  into  imperial  silver  coins.  Up  to  1893  it 
h? "I  not  sold  more  than  about  $140,000,000  worth 
a  silver.  This  was  less  than  any  one  year's  pro- 


MARKET   PRICE   OF   PRECIOUS   METALS        IO3 

duction  since  1888;  and  this  comparatively  small 
sum  of  silver  thrown  on  the  market  could  not  have 
caused  so  great  a  decline  in  the  price  of  that  metal. 
The  States  composing  the  Latin  Union  did  not 
withdraw  any  of  their  silver  from  circulation,  but 
merely  suspended  the  coinage  of  silver  on  individual 
or  private  account.  It  is  manifest,  therefore,  that 
there  was  not  sufficient  of  the  metal  withdrawn 
from  circulation  to  cause  any  decrease  in  its  value. 
Besides,  there  was,  in  fact,  no  decrease  in  the  quan- 
tity of  silver  money  in  use,  because  a  great  deal 
more  silver  has  been  coined  since  1873  than  for  any 
previous  period  of  time  of  equal  length,  and  since 
there  is  as  much,  or  more,  silver  money  in  use  sub- 
sequent to  1873  as  there  was  prior  to  that  time,  it 
follows  that  the  decline  in  the  price  of  silver  was 
not  caused  by  the  withdrawal  of  silver  money  from 
circulation,  for  there  was  no  reduction  in  the  actual 
quantity  of  silver  money  in  use.  The  whole  amount 
of  silver  withdrawn  from  circulation  by  all  States, 
leaving  out  of  consideration  the  quantity  added 
since  1873,  did  not  amount  to  as  much  as  the  gold 
which  was  thrown  out  of  circulation  in  this  country 
by  the  suspension  of  specie  payments  in  1861  ;  and 
we  have  seen  that  the  withdrawal  of  this  amount  of 
gold  did  not  decrease  the  value  of  gold.  But  it  is 
asserted  that  the  action  of  Germany  and  the  action 
of  the  Latin  Union  were  a  threat  that  there  would 
be  no  future  demand  for  silver.  This  threat  of  a 
loss  of  future  demand  could  only  affect  future  supply. 
If  the  future  supply  exceed  the  future  demand,  it 
would  be  merely  a  question  of  over-production; 


104      NATURE,  USES,  AND   VALUE   OF   MONEY 

and  even  if  these  States  had  no  future  demand  for 
silver  for  monetary  purposes,  that  would  not  be  the 
cause  of  the  decline  in  the  price  of  a  future  supply, 
but  the  future  over-production  would  be  the  cause. 
But  there  has  been  in  fact  no  decrease  in  the  mone- 
tary demand  since  1873,  but  rather  an  increase.  The 
threat  of  a  loss  of  a  future  demand  did  not  therefore 
cause  the  decline  of  the  price  of  silver.  If  it  be 
said  that  although  there  had  been  no  actual  decrease 
in  the  monetary  demand  for  silver,  still  the  suspen- 
sion of  private  coinage,  or  the  denial  of  free  and  un- 
limited coinage  by  Germany  and  the  Latin  Union 
was  the  cause  of  the  decline  of  the  price  of  silver. 
If  this  denial  or  suspension  had  any  such  effect,  it 
must  be  so,  for  the  reason  that  the  right  of  coinage 
of  the  whole  supply  of  silver,  or  that  the  mint,  creates 
such  a  demand  for  the  metal  as  will  cause  an  in- 
crease in  its  market  price  and  in  its  purchasing 
power.  But  we  have  seen  that  coinage  itself  adds 
nothing  to  the  value  of  the  metal;  much  less  then 
can  the  mere  right  of  coinage  add  to  the  value  of 
the  metal;  and,  as  to  the  mint  creating  a  demand 
for  silver,  any  such  claim  is  simply  preposterous. 
The  mint  can  create  no  demand.  It  merely  certifies 
to  the  weight  and  fineness  of  the  metal  contained  in 
the  coin.  As  well  say  that  the  inspector  of  oil  or 
any  other  commodity  creates  a  demand  for  the  oil 
or  other  commodity  inspected.  If  the  Government 
erected  flouring  mills  all  over  the  country  and  would 
grind  every  man's  wheat  free  of  charge,  this  would 
be  free  and  unlimited  grinding,  and  yet  no  one 
would  claim  that  these  mills  created  a  demand  for 


MARKET   PRICE   OF   PRECIOUS   METALS        IO$ 

wheat.  Now,  the  denial  or  suspension  of  free  and 
unlimited  coinage  of  silver  can  only  affect  the  value 
of  silver  for  one  or  the  other  of  the  reasons  above 
given,  to  wit :  that  the  right  of  coinage  of  the  whole 
supply  of  silver,  or  that  the  mint,  creates  such  a  de- 
mand for  the  metal  as  will  cause  an  increase  in  its 
value,  and  in  no  other  possible  way  can  such  suspen- 
sion or  denial  of  free  and  unlimited  coinage  have 
any  such  effect.  Since  neither  of  these  reasons  or 
causes  can  have  any  such  effect  we  must  conclude 
that  the  action  of  Germany  and  of  the  Latin  Union  is 
not  responsible  for  the  decline  of  the  price  of  silver. 
Some  persons  charge  that  the  act  of  Congress  of 
this  country,  passed  in  1873,  constituting  gold  the 
primary  or  redemption  money  and  silver  subsidiary 
or  secondary  money, — the  crime  of  1873 — was  the 
cause  of  the  fall  in  the  price  of  silver,  but,  surely, 
this  claim  cannot  be  made  seriously.  This  country 
had  then  no  silver  in  circulation,  and,  consequently, 
threw  no  silver  out  of  circulation,  and  hence  the  act 
of  Congress  could  have  no  effect  on  the  price  of 
silver. 

Some  there  are  who  have  assumed  that  it  was  not 
silver  which  depreciated  in  its  purchasing  power,  but 
that  gold,  on  account  of  the  increased  demand  for  it 
to  take  the  place  of  the  silver  money  which  had  been 
displaced  by  the  action  of  Germany  and  the  States 
of  the  Latin  Union,  has  appreciated  in  value.  As 
to  silver  not  having  depreciated,  it  is  admitted  that 
its  purchasing  power  has  decreased  at  least  since 
1891  :  and  this  admission  was  compulsory,  for  the 
reason  that  their  own  favorite  statistics  proved  be- 


106      NATURE,  USES,  AND  VALUE   OF  MONEY 

yond  question  that  in  1892  and  the  subsequent 
years,  silver  had  depreciated  in  purchasing  power;  of 
course  these  statistics  only  proved  what  had  always 
been  the  fact,  but  the  evidence  of  it  had  not  until 
that  time  been  reduced  to  a  demonstration.  As  to 
the  appreciation  of  gold,  it  is  sufficient  to  say  that, 
inasmuch  as  it  has  been  shown  that  but  a  small 
quantity  of  silver  was  ever  displaced,  and  that  that 
small  quantity  has  been  more  than  replaced  by  sub- 
sequent coinage,  there  could  not  have  been  such  an 
increased  demand  for  gold  to  replace  in  the  currency 
the  silver  which  had  been  displaced,  as  would  have 
caused  its  appreciation.  The  States  of  the  Latin 
Union  did  not  have  to  purchase  gold  to  replace  the 
silver  which  had  been  displaced,  for  these  States  did 
not  displace  any  silver;  and  as  to  the  purchase  of 
gold  by  Germany,  it  appears  that  from  1871  to  1886, 
the  excess  of  the  imports  of  gold  into  Germany  over 
the  exports  was  but  a  little  over  $i  13,000,000,  a  sum 
much  less  than  was  withdrawn  from  circulation  in 
the  United  States  in  1861  (which  made  no  impres- 
sion on  prices),  and  a  sum  much  too  small  to  cause 
any  appreciation  of  gold.  During  the  same  period 
the  excess  of  the  exports  of  silver  from  Germany 
over  the  imports  was  a  trifle  over  $3,240,000,  a  sum 
entirely  too  small  to  have  caused  any  fall  in  the 
price  of  silver. 

It  is  not  at  all  difficult  to  locate  the  cause  of  the 
decline  in  the  value  and  price  of  silver,  and  the  true 
cause  has  been  presented  over  and  over  again,  but 
those  who  insist  that  the  decline  in  the  value  of 
silver  was  caused  by  the  action  of  Germany  and  the 


MARKET  PRICE  OF  PRECIOUS  METALS      107 

Latin  Union  refuse  to  recognize  the  truth.  The  true 
cause  of  the  fall  in  the  price  and  value  of  silver  is 
no  mystery.  It  was,  and  is,  simply  the  unprece- 
dented increase  in  the  production  of  silver.  The 
figures  show  that  in  modern  times  the  highest  price 
of  silver  was  in  1859:  its  average  price  for  that  year 
being  62-^  pence  per  ounce;  from  this  time  on  the 
price  of  silver  declined,  gradually  and  with  some 
fluctuations,  but  with  ever-increasing  force.  Thus 
the  average  price  per  ounce  during  the  year  1864 
was  6if  pence;  in  1869,  6oT\  pence;  in  1874,  58^ 
pence;  in  1879,  S1!  pence;  in  1884,  5of  pence;  in 
1889,  4i||  pence;  in  1894,  28|  pence;  in  1897,  27} 
pence. 

The  world's  production  of  silver  was  as  follows: 


Period. 

Ounces, 

Coinage  Value. 

1841-1850  (10  years)    . 

.      250,903,422 

%     324,400,000 

1851-1855  (  5  years)    . 

.      142,442,986 

184,169,000 

1856-1860    "      " 

.      145,477,142 

188,092,000 

1861-1865    "     " 

.      177,009,862 

228,86l,OOO 

1866-1870    "      " 

.      215,257,914 

278,313,000 

1871-1875     "      " 

.      316,585,069 

409,322,000 

1876-1880    "      " 

.      393,878,009 

509,256,000 

1881-1885     "      " 

.      460,019,722 

594,773,ooo 

1886-1890    "      " 

.      544,557,145 

704,073,900 

1891-1895     "      " 

.      787,694,425 

1,018,433,200 

The  following  table  of  the  average  prices  during 
the  same  period  shows  how  naturally  and  uniformly 
the  prices  of  silver  fell  correspondingly  with  the  in- 
crease of  its  production. 

1841-1850 59.68   +  pence. 

1851-1855 61.16  +      " 


108       NATURE,  USES,  AND    VALUE   OF   MONEY 

1856-1860  .         .         .         .         .  61.50        pence. 

1861-1865  .         .         .         .         .  61.21   +  " 

1866-1870 60.82   4-  " 

1870-1875 59.05 

1876-1880  .         .         .         .         .  52.725  " 

1881-1885 50.737+  " 

1886-1890 44-47  +  " 

1891-1895  35.825 

The  annual  production  increased  from  $81,864,000 
in  1873  to  $216,292,500  in  1895,  about  two  and  one- 
half  times  greater  than  the  production  of  1873. 
The  average  price  of  silver  in  1873  was  59T4¥  pence; 
in  1895  it  was  29^  pence,  a  fall  of  about  one-half. 
Really  a  wonderful  correspondence  in  the  increase 
of  production  and  the  fall  in  price.  These  actual 
facts  ought  to,  and  do,  prove  beyond  controversy 
that  the  fall  in  the  price  of  silver  was  not  caused  by 
the  so-called  demonetization  of  silver  by  Germany 
and  the  restricted  coinage  by  the  Latin  Union,  but 
solely  by  the  natural  and  reasonable  cause  of  a  great 
increase  of  production.  While  all  the  foregoing 
facts  have  been  presented  in  order  to  show  that  the 
decline  in  the  price  and  purchasing  power  of  silver 
was  not  caused  by  any  demonetization  or  restriction 
of  coinage  of  that  metal,  still,  it  must  ever  be  re- 
membered that  such  demonetization  and  restriction 
of  coinage  could  not,  on  principle,  be  the  cause  of 
such  fall  in  price  and  purchasing  power,  because  the 
use  of  a  precious  metal  as  money  does  not  cause 
such  a  demand  for  it  as  will  cause  an  increase  either 
of  its  price  or  of  its  purchasing  power. 


CHAPTER  VII 

OF  THE  MEANING  OF  THE  EXPRESSIONS,  "  THE 
APPRECIATION  OF  GOLD"  AND  "  THE  DE- 
PRECIATION OF  GOLD  " 

§  I.  WE  have  seen  that  a  change  in  prices  of  com- 
modities may  be  caused  by  any  one  of  the  following 
causes: 

(a)  If  the  commodity  selected  as  the  standard  of 
value  rises  in  value,  the  money  in  use  being  at  par 
with  the  standard,  then  prices  will  fall;  and  if  the 
standard  fall  in  value,  the  money  in  use  remaining 
at  par  with  it,  then  prices  will  rise. 

(b)  If  the  value  of  the  money  in  use  be  depre- 
ciated below  the  value  of  the  standard,  then  prices 
will  rise;  and,  if  the  money  in  use  be  appreciated 
above  the  value  of  the  standard,  prices  will  fall. 

In  the  above  cases  the  fall  or  rise  of  prices  will  be 
caused  by  the  changes  in  the  value  of  gold,  or  of  the 
money  in  use,  it  being  the  measure  of  value. 

(c)  The  price  of  a  commodity  may  be  more  or  less 
according  to  its  location ;  for  instance,  the  price  of 
a  commodity  will,  naturally,  be  less  at  its  place  of 
production  than  it  will  be  at  a  place  distant  there- 
from. 

(d)  The  price  of  a  commodity  may  rise  in  con- 
sequence  of   an   increase   of   the   demand    for  the 

109 


no     NATURE,  USES,  AND  VALUE  OF  MONEY 

commodity,  or  the  price  may  fall  in  consequence  of 
a  diminution  of  the  demand,  the  supply,  in  either 
case,  not  increasing  or  diminishing  in  proportion  to 
the  increase  or  diminution  of  the  demand. 

(e)  The  price  of  a  commodity  may  rise  on  account 
of  a  diminution  of  the  supply  of  the  commodity,  or 
the  price  may  fall  on  account  of  an  increase  of  the 
supply;  in  either  case  the  demand  not  decreasing  or 
increasing  in  proportion  to  the  diminution  or  increase 
of  the  supply. 

In  the  last  three  cases  the  rise  or  fall  in  prices  is 
occasioned  wholly  and  entirely  by  causes  relating 
solely  to  the  commodities  themselves. 

We  have  also  seen  that  the  expansion  of  credit 
causes  prices  generally  to  rise  and  the  contraction 
of  credit  causes  prices  to  fall  ;  to  which  may  be 
added  competition,  which,  although  not  coming 
strictly  within  the  province  of  a  work  on  money,  is 
yet  an  element  recognized  as  having  an  influence  on 
prices. 

Now,  political  economists  generally  call  a  fall  in 
prices,  whether  the  fall  be  occasioned  by  causes 
directly  relating  to  gold  or  money — such  as  an  in- 
creasing demand  or  a  diminishing  supply,  thus 
increasing  its  value, — or  by  causes  relating  solely  to 
the  commodities  themselves,  or  by  an  expansion  of 
credit  or  by  competition,  or  by  any  other  cause, 
"  an  appreciation  of  gold  or  money,"  and  a  rise  in 
prices,  no  matter  what  causes  such  rise,  a  "  depre- 
ciation of  gold  or  money":  that  is,  that  tailing 
prices  and  appreciation  of  gold  are  synonymous 
terms;  and  the  bimetallist  goes  still  farther,  and  in- 


THE   APPRECIATION   OF   GOLD  III 

sists  that  all  falls  in  prices  occasioned  by  any  of  the 
causes  above  mentioned  as  affecting  prices,  or  by 
any  other  cause,  is  an  appreciation  of  gold  or  money, 
and  that  it  is  the  fault  of,  or  in,  gold  or  money  which 
causes  falling  prices;  that  is  to  say,  whether  the  fall 
is  occasioned  by  causes  relating  solely  to  gold  or 
money  themselves,  or  by  causes  relating  solely  to 
commodities  themselves  or  by  a  contraction  of 
credit  or  by  competition ;  still,  in  all  cases,  the 
cause  of  the  fall  in  prices  is  the  appreciation  of  gold 
or  money. 

The  correctness  of  the  foregoing  statement  of  the 
bimetallist's  position  will,  I  think,  be  substantiated 
by  the  following  quotations  from  two  of  the  most 
eminent  and  fairest  bimetallists  in  the  country. 

F.  A.  Walker,  in  his  work  entitled  International 
Bimetallism,  pp.  254-256,  etc.,  says: 

"  But  the  chief  controversy  has  raged  around  the 
question  as  to  the  fall  of  gold  prices  and  the  appreciation 
of  gold.  These  two  expressions  are  by  the  bimetallists 
treated  as  in  effect  synonymous.  Such  was  the  usage  of 
economists  without  distinction,  before  this  controversy 
began.  Jevons  and  all  other  writers  who  dealt  specially 
with  the  subject  of  currency,  when  they  spoke  of  the  fall 
of  gold  prices  meant  an  appreciation  of  gold;  when  they 
spoke  of  the  appreciation  of  gold,  they  meant  only  a  fall 
of  gold  prices.  Some  monometallists,  however,  especially 
from  the  time  of  the  Herschell  Commission,  have  felt 
themselves  driven  to  deny  the  identity  of  these  expres- 
sions, and  to  denounce  the  use  of  the  word,  appreciation, 
except  in  a  highly  technical  sense.  They  declare  that 
it  can  properly  be  applied  only  to  cases  where  the  fall  of 


112       NATURE,  USES,  AND   VALUE   OF   MONEY 

gold  prices  results  from  causes  affecting  gold,  and  not 
from  causes  affecting  commodities.  Thus,  they  would 
say  that,  if  gold  had  largely  diminished  in  quantity, 
commodities  remaining  the  same,  there  would  be  a  real 
appreciation  of  gold,  since  here  the  change  in  prices 
would  result  from  a  change  affecting  gold;  but,  on  the 
other  hand,  if  gold  remained  the  same  and  commodities 
largely  increased,  through  the  discovery  of  new  resources 
in  nature  and  of  new  arts  in  industry,  the  lower  gold 
prices  would  not  constitute  a  real  case  of  the  apprecation 
of  gold. 

"  The  question  is,  after  all,  one  of  the  use  of  words 
only.  My  own  view  inclines  to  regarding  the  term,  ap- 
preciation of  gold,  as  being  the  same  thing  with  the  fall 
of  general  prices  (i)  Because  the  two  terms  have  been 
used  in  this  sense  throughout  a  vast  amount  of  economic 
literature,  by  writers  of  the  highest  reputation  in  cur- 
rency and  finance,  and  that  without  challenge  or 
question  until  the  controversial  necessities  of  the  mono- 
metallists  caused  them  to  insist  upon  the  distinction. 
(2)  Because,  however  just  may  be  the  distinction  between 
two  causes  which  might  operate,  at  the  same  time,  from 
different  directions,  to  produce  a  fall  of  gold  prices,  it 
would  be  impracticable  to  divide  the  result  accordingly, 
No  human  being  could  possibly  know  enough  to  say  how 
much  of  such  an  effect  was  due  to  one  or  to  the  other  of 
these  causes.  At  the  same  time  we  should  bear  in  mind, 
and  be  free  to  state  in  argument,  that  an  appreciation  of 
gold  may  sometimes  be  due  to  causes  affecting  the  metal, 
sometimes  to  causes  affecting  commodities,  sometimes  to 
both  in  conjunction.  This  I  understand  to  be  the  view 
of  Sir  Robert  Giffen,  who,  in  his  testimony  before  the 
Commission  on  Depression  in  Agriculture,  said: 

"  '  We  should  confine  ourselves  to  a  strict  use  of  the 


THE  APPRECIATION   OF   GOLD  113 

language  and  speak  of  the  appreciation  of  money  as 
merely  the  equivalent  of  a  general  fall  of  prices;  and 
then  discuss  the  question  how  far  and  in  what  sense  that 
can  be  considered  due  to  the  contraction  of  money.' 

"  Passing  by  this  point,  it  may  be  said  that,  ever  since 
1873,  there  has  been  an  almost  continuous  fall  of  prices 
in  terms  of  gold." 

Mr.  Walker  then  proceeds  to  show  by  Mr.  Sauer- 
beck's tables  that  prices  have  fallen  since  1873,  in 
terms  of  gold;  and  then  states  the  line  of  argument 
on  both  sides  as  follows :  That  bimetallists  have 
treated  this  result  as  due,  primarily  and  principally, 
if  not  almost  wholly,  to  changes  affecting  the  precious 
metals  ;  that  they  declare  the  demonetization  of 
silver  by  Germany,  and  by  other  states  following 
Germany,  created  an  increased  demand  for  gold  just 
at  the  time  when  gold  production  was  declining,  and 
that  it  was  this  which  caused  the  fall  of  gold  prices ; 
that  they  flatly  deny  the  assertion  of  monometallist 
writers  that  the  normal  demand  for  metal  money  is 
diminishing  throughout  the  civilized  world,  owing 
to  the  introduction  of  credit  substitutes  and  the 
various  economies  in  regard  to  the  use  of  money; 
that  the  habits  of  the  people,  the  rapid  development 
of  industry  and  trade,  and  the  vast  increase  of  travel 
are  all  the  time  making  necessary  a  larger  use  of 
metallic  money;  that  many  monometallists  have 
undertaken  to  establish  the  proposition  that  there 
has  been  no  true  appreciation  of  gold ;  that  its  in- 
creasing power  in  exchange  is  wholly  due  to  the 
multiplication  of  commodities  and  the  diminishing 


114      NATURE,  USES,  AND  VALUE   OF   MONEY 

cost  of  production ;  and  refers  to  the  work  of  Mr. 
David  A.  Wells,  Recent  Economic  Changes;  and 
then  Mr.  Walker  remarks  as  follows: 

"  that  such  a  thesis  as  that  which  Mr.  Wells,  in  com- 
mon with  Professor  Laughlin  and  Mr.  Atkinson,  has 
undertaken  to  defend  is,  on  its  very  face,  monstrous  and 
absurd.  A  number  of  nations  have  largely  diminished 
(relatively)  their  use  of  silver;  and  have  largely  increased, 
both  relatively  and  absolutely,  their  use  of  gold.  This 
must  have  had  an  effect  to  lower  prices  expressed  in 
terms  of  gold."  1 

Then  he  quotes  Sir  Robert  Giffen  to  the  effect 
that  if  gold  or  silver  is  increasing  in  demand  without 
any  corresponding  increase  in  supply,  then  people 
who  want  gold  and  silver  must  pay  more  for  them. 

Mr.  Wells  is  then  criticised  because:  Many  in- 
stances he  adduces  are  of  such  a  striking  character 
as  to  create  an  altogether  undue  impression  upon  the 
mind  of  the  reader. 

Whole  classes  of  instances  which  he  gives  of  a 
greatly  reduced  cost  of  production  are  such  as  con- 
cern only  the  profits  of  the  most  favored  producers, 
and  are  not  such  as  affect  perhaps  in  the  slightest 
degree,  the  prices  at  which  commodities  are  sold, 
which,  as  is  well  known,  are  determined  by  the  cost 
of  production  under  the  least  fortunate  conditions. 

Many  of  the  most  impressive  examples  of  the  in- 
creased power  of  human  labor  and  capital  are  drawn 
only  from  limited  fields  or  single  countries,  while 
vastly  larger  territories  have  scarcely  felt  the  slightest 
1  See  page  263. 


THE   APPRECIATION   OF   GOLD  11$ 

influence  from  such  inventions,  discoveries,  and  im- 
provements in  the  arts;  and,  lastly,  he  overlooks  the 
fact  that  during  the  twenty-  or  twenty-five-year 
period  immediately  preceding  1873,  during  all  which 
time  prices  were  rising,  enormous  developments  of 
the  same  general  character,  in  increase  of  human 
power  in  production,  took  place.  Those  changes 
were  not  of  the  same  absolute  importance  as  the 
changes  described  by  Mr.  Wells;  but  it  is  fairly  a 
question  whether  they  were  not  of  equal  relative  im- 
portance. Then  Mr.  Walker  concludes  that  the 
truth  lies  between  the  two  extremes  in  this  matter, 
and  says : 

"  I  hold,  with  the  leading  bimetallist^writers,  (i)  That 
a  fall  of  prices  does  not  necessarily  accompany  a  great 
reduction  in  the  cost  of  production  as  is  witnessed  by  the 
experience  of  the  world  from  1853  to  1873,  when  enorm- 
ous changes  of  this  character  were  taking  place,  while 
yet  prices  not  only  did  not  fall  but  distinctly  rose.  (2) 
That,  in  spite  of  the  introduction  of  credit  substitutes  for 
money  and  of  various  economies  in  the  use  of  money, 
the  tendency  of  the  age  is  markedly  in  the  direction  of 
a  larger  demand  for  metallic  money;  and  that  this  de- 
mand, together  with  the  demand  for  new  gold  for  the 
currency  of  several  European  nations,  has  been  very  in- 
adequately met  by  the  production  of  the  last  twenty 
years.  On  the  other  hand,  I  concede  to  the  monometal- 
lists  that  there  has  been  a  notable  reduction  in  the  cost 
of  producing  very  many  commodities,  which,  by  itself 
alone,  would  tend  to  bring  about  some  part  of  the  result 
under  consideration." 

1  See  pp.  262-265. 


Il6      NATURE,  USES,  AND   VALUE   OF   MONEY 

Mr.  Walker  again  quotes  Sir  Robert  Giffen,  who 
is  disposed  to  give  the  greater  weight  to  the  scarcity 
of  gold,  and  the  report  of  six  members  of  the 
Herschell  Commission,  to  the  effect  that  the  fall  in 
prices  was  the  result  of  both  causes,  but  that  the 
greater  part  has  resulted  from  causes  touching  the 
commodities  rather  than  from  an  appreciation  of 
the  standard. 

And  then,  on  page  269,  begins  a  long  account  of 
the  evils  and  disasters  due  to  the  long-continued  fall 
of  prices  caused  by  changes  in  the  money  supply ; 
and  then  goes  on  reciting  the  evils  and  disasters  in 
detail,  virtually  treating  the  fall  in  prices  and  the 
evil  and  disastrous  consequences  therefrom,  as 
wholly  caused  by  the  decreased  money  supply ;  or, 
in  other  words,  by  the  appreciation  of  gold. 

On  page  277,  etc.,  he  comments  on  the  credit 
substitutes  for  money,  and  quotes  Mr.  L.  L.  Price, 
who  thinks  that  credit  is  limited  and  controlled  by 
the  changing  dimensions  of  the  cash  basis  upon 
which  it  rests,  and  that  through  the  bank  reserves 
meeting  or  restricting  the  demands  for  petty  cash 
and  permitting  an  expansion  or  a  curtailment  of 
credit,  the  supplies  of  the  standard  metal  exert  an 
important  influence  on  prices  ;  Professor  Jevons,  to 
the  effect  that  credit  gives  a  certain  latitude  without 
rendering  prices  ultimately  independent  of  the 
metallic  basis;  Professor  Shield  Nicholson,  to  the 
effect  that  he  compares 

"  those  who  adduce  the  fact  that  trade  is  so  largely 
carried  on  by  means  of  paper  as  a  proof  that  metallic 


THE   APPRECIATION   OF   GOLD  1 1/ 

money  has  ceased  to  be  of  any  great  consequence,  with- 
out reflecting  that  the  paper,  itself,  is  conditioned  upon 
the  existence  and  presence  of  the  metal,  to  an  architect 
who  should  declare  that  it  did  n't  in  the  least  matter  of 
what  the  foundations  of  a  building  consisted,  since  all  the 
important  parts  would  be  supported  by  the  first  story." 

Mr.  Walker  then  concludes : 

"  I  am  convinced  that  what  these  economists  say  re- 
garding this  matter  is  strictly  true.  While  the  expansion 
of  the  credit  system  may,  in  a  measure,  disguise  the  in- 
fluence of  a  diminishing  money  supply,  it  cannot,  at  the 
best,  wholly  offset  that  influence;  while  it  is  fairly  a 
question  whether  the  operations  of  credit  are  not  less 
active,  rather  than  more  active,  when  contraction  of  the 
currency  is  going  on  than  when  the  currency  is  under- 
going a  moderatively  progressive  increase." 

E.  Benjamin  Andrews,  President  of  Brown  Uni- 
versity, in  his  work  entitled  An  Honest  Dollar,  has 
this  to  say  on  this  question  (page  3) : 

"  A  rise  in  prices,  or,  what  is  the  same,  a  fall  in  the 
value  of  money,  though  also  an  evil,  has  this  incidental 
advantage,  that,  unless  so  marked  as  to  imply  undue 
speculation  or  other  morbid  commercial  conditions,  it 
tempts  money  out  of  its  hiding-places  into  circulation, 
giving  briskness  to  business.  But  this  never  does  good 
enough  to  compensate  for  the  evil  of  unsteadiness  in  the 
value  of  money.  To  have  its  value  persistently  the  same, 
— that  is  the  central  virtue  of  good  money." 

Page  4,  etc. : 

"  Money   may   have   appreciated,   first,   because   the 


Ii8       NATURE,  USES,  AND   VALUE   OF   MONEY 

supply  of  it  has  decreased,  as  by  losses  of  or  by  new 
difficulty  in  extracting  precious  metal;  or,  second,  be- 
cause the  demand  for  it  has  increased,  as  by  absolute 
enlargement  to  the  volume  of  work  for  money  to  do,  or 
by  the  lessening  of  credit  and  barter  exchanges;  or, 
third,  because,  while  those  two  conditions  remain  the 
same,  the  intrinsic  cost  of  producing  given  amounts  of 
other  articles  than  money  has  decreased.  • 

"  Now  people  are  very  reluctant  to  look  upon  it  as  a 
fault  in  money  to  appreciate  in  this  third  way.  Yet  it 
certainly  is.  The  contrary  notion  springs  from  the  effort 
to  think  money  value  as  absolute  and  intrinsic,  instead 
of  relative.  Here,  just  as  in  the  other  cases,  by  the  only 
test  which  can  be  applied,  that  of  values  in  general, 
money  has  gone  astray.  It  is  vain  to  say  that  the  goods 
have  shrunk  but  the  yardstick  remained  fixed.  Right 
in  the  very  fact  of  its  remaining  fixed  lies  its  vice;  since 
its  sole  seal  and  credential  as  a  just  scale  proceeded  from 
its  relation  to  general  commodity.  Change  in  that  rela- 
tion is  one,  indivisible,  indefensible  fact,  whether  origi- 
nating in  the  money  term  of  the  equation  or  in  the 
commodity  term. 

'  There  is  a  curious  confusion  of  cause  and  effect 
upon  this  point,  which  identifies  fall  of  prices  with 
cheapening  of  commodities.  Dr.  Earth,  editor  of  the 
Berlin  Nation,  had  in  his  journal  some  years  since,  an 
article  entitled  '  The  Decline  in  Prices  and  Advance  in 
Civilization,'  wherein  he  set  forth  such  decline,  not  as 
a  sign  of  economic  advance,  which,  under  the  world's 
present  monetary  system  it  sometimes  is,  but  as  itself  an 
element  in  such  advance,  which  it  is  not.  Hon.  David 
A.  Wells  falls  into  the  same  error  in  his  sixth  article  on 
'  Recent  Economic  Disturbances.'  That  manufactured 
and  some  other  commodities  have  for  years  been  de- 


THE   APPRECIATION   OF   GOLD  1 19 

creasing  in  intrinsic  cost,  is  a  great  blessing.  But  it  was 
not  necessary  that  general  prices  should  fall,  and  this 
fall  has  been  no  less  an  evil  for  accompanying  a  phe- 
nomenon in  itself  a  good." 

He  then  proceeds  to  expound  on  the  evils  attend- 
ing the  value  fluctuations  of  money,  particularly  the 
calamities  occasioned  by  the  appreciation  of  money. 

On  page  20  he  says : 

"  Money  grew  precious  (prices  fell),  unsteadily  yet 
surely,  all  the  way  from  1809  to  1850,  in  spite  of  the 
relatively  enormous  increase  of  those  years  in  the  world's 
store  of  gold  and  silver:  $135,798,000  in  gold,  $79,480,- 
700  in  silver;  $215,278,700  in  both. 

"  From  1851  to  1875  the  increase  being  $3,317,625,000 
in  gold  and  $1,359,125,000  in  silver,  or  $4,712,750,000  in 
both,  was  tremendous  enough  to  raise  prices  and  cheapen 
monetary  units  everywhere;  yet  in  1873.  partly  by  rela- 
tive deficit  of  gold,  but  mainly  by  the  demonetizing  of 
silver,  the  law  of  falling  prices,  of  enrichment  to  the 
dollar,  reasserted  itself,  and  the  effect  has  continued 
since." 

Pages  1 8,  19,  and  20: 

"  I  by  no  means  allege  that  the  rise  and  fall  of  money- 
value  have  exactly  kept  pace  with  the  scarcity  and 
abundance  of  precious  metal.  The  parallelism  has  re- 
sembled more  that  between  the  tides  and  the  motion  of 
the  moon.  And  the  ebb  and  flow  of  value  have  con- 
fessedly been  less  marked  since  the  aggregate  of  money 
material  on  earth  has  grown  so  immense.  Yet  it  is  safe 
to  say  that  no  considerable  permanent  change  in  the 
world's  yearly  output  of  gold  and  silver  has  ever  yet  failed 


120       NATURE,  USES,  AND   VALUE    OF   MONEY 

to  produce  an  answering  change  in  the  power  of  money 
over  goods.  In  a  word,  vexations  in  kind  entirely  like 
those  which  rising  and  falling  prices  have  been  occasion- 
ing in  our  day,  have  dogged  men  ever  since  money  was 
invented.  In  degree,  of  course,  the  universal  introduc- 
tion of  credit  immensely  aggravates  the  trouble.  Money 
has  been  a  great  good  in  the  world,  but  here,  as  in  all 
other  things,  bane  has  mixed  with  the  blessing. 

"  Is  this  plague  necessary?  Must  it  be  perpetual? 
Is  the  commercial  world,  the  entire  money-using  world, 
to  be  forever  tormented  with  this  accursed  up  and  down 
in  the  purchasing  power  of  money  ? 

;<  The  general  thought  evidently  is  that  the  curse  is 
inevitable,  something  forced  upon  us  by  the  very  nature 
of  things,  to  be  borne  as  patiently  as  may  be,  but  gotten 
rid  of  never. 

"  But  should  we  even  see  the  gold  output  of  1849-69 
duplicated,  we  should  have  no  right  to  expect  permanent 
steadfastness  in  money  value.  Gold  is  produced  under 
the  law  of  diminishing  return,  and  hence  must  in  the 
long  future  grow  more  and  more  scarce,  its  cost  of  pro- 
duction greater  and  greater,  while  most  of  the  commodi- 
ties trafficked  in  by  means  of  money  are  not  under  this 
law,  are  to  grow  cheaper  and  cheaper  forever,  and  almost 
none  are  so  completely  in  the  clutch  of  the  law  as  gold 
is.  Manufactured  goods,  an  increasing  proportion  of 
all,  already  much  more  than  half,  are  only  very  remotely 
affected  by  the  law  of  diminishing  return,  and  will  go  on 
cheapening  to  all  time." 

He  deals  with  substitutes  for  money  as  follows, 
page  20,  etc. : 


THE   APPRECIATION    OF   GOLD  121 

"  It  is  frequently  urged,  in  reply  to  considerations  like 
these,  that  the  need  for  metal  money  is  growing  less  and 
less,  because  of  the  many  money-surrogates  coming  into 
use,  and  the  need  for  money  or  its  surrogates  lessening 
because  of  the  numerous  substitutes  for  money  more  and 
more  usual  each  year.  Telephone,  telegraph  and  bank 
checks  transfer  enormous  values  every  day,  without  the 
slightest  intervention  of  money,  whether  metal  or  paper; 
and  of  the  work  for  which  money  is  requisite  still,  paper 
at  present  performs  an  immense  share,  as  well  as  coin 
could,  and  even  better. 

"  Any  abridgment  to  the  need  of  money  would  tend, 
of  course,  to  lessen  the  value  of  money,  to  bring  down 
its  value  part  passit  with  that  of  commodities.  But  I  for 
my  part  am  unable  to  see  any  prospect  of  a  lessened  need 
for  money  in  the  future.  I  find  no  evidence  of  any 
natural,  commercial  or  social  causes  which  are  going  to 
reverse  the  great  historic  and  economic  law  of  falling 
prices.  Let  us  look  at  this  point  with  care. 

"  The  facts  touching  new  modes  of  exchange  are  im- 
portant, but  their  bearing  on  the  problem  before  us  is 
weaker  than  has  often  been  supposed." 

And  then  in  his  argument  he  alleges: 

That  clearings  have  for  many  years  both  abso- 
lutely and  still  more  relatively  to  the  growth  of 
business  and  commerce  been  vastly  falling  off  in 
England  and  in  this  country.  Never  since  1882  has 
the  New  York  Clearing-House  cleared  in  an  autumn 
week  a  sum  reaching  the  billion  figure,  which  was  a 
regular  thing  that  year.  That  telephone  and  tele- 
graph only  do  the  work  a  slower  check  would  do. 
So  it  is  misleading  to  allow  for  all  the  paper  in  the 


122      NATURE,    USES,   AND   VALUE   OF   MONEY 

world,  since  after  paper  has  expelled  metal  in  any 
land,  additions  to  its  volume  affect  world's  prices 
no  more. 

That  quasi  money  and  substitutes  for  money  aid 
in  cheapening  commodities,  by  rendering  less  neces- 
sary those  large  stocks  of  goods,  wholesale  or  retail, 
which  were  once  indispensable. 

But  that  this  cheapening,  though  in  itself  an  ad- 
vantage, is  indirectly  among  the  worst  disturbers  of 
monetary  peace,  ever  helping  on  that  increase  in  the 
command  of  money  over  goods  which  is  the  s'ource 
of  so  much  woe  to  the  industrial  world.  Wares 
being  cheaper,  are  multiplied,  exchange  among  them 
tending  to  demand  as  much  money  as  when  fewer 
and  dearer,  so  that  their  fall  in  value,  not  inducing 
any  fall  in  money  value,  continually  upsets  the 
power  between  given  amounts  of  them,  and  given 
amounts  of  money.  In  so  far  as  the  devises  named 
cheapen  goods  while  they  lessen  the  money  need  in 
the  first  instance,  their  secondary  influence  is  to 
increase  this. 

What  is  the  world's  or  a  single  country's  monetary 
need?  If  we  were  instituting  a  money  system  ab 
initio,  the  main  problem  would  be  :  What  amount  of 
money  will  "  go  round"?  How  much  will  do  all 
needed  money  work  ? 

But  that  when  a  money  system  is  already  in  use 
another  question  equally  weighty  must  be  asked, 
viz.  :  Whether  or  not  the  supply  is  bounteous  and 
well  regulated  enough  to  render  the  unit  steady  in 
value.  Satiable  or  insatiable,  a  requirement  of  the 
money  system  to-day  is  such  regulation  as  may 


THE   APPRECIATION   OF   GOLD  123 

preserve  the  purchasing  power  of  the  unit  of  value 
permanently  identical  with  itself. 

That  the  truck  system  of  paying  factory  help  is 
dying  out. 

That  twenty  years  ago  barter  was  common  in  rural 
districts;  now  money  is  mostly  used  instead. 

That  money  has  mainly  supplanted  the  quasi- 
barter  so  common  among  our  fathers  in  the  form  of 
book  accounts  between  neighbors. 

That  more  significant  is  the  division  of  labor  by 
which  many  important  products,  like  wagons,  har- 
nesses, shoes,  and  clothing,  whose  manufacture  used 
to  begin  and  end  under  the  same  roof,  are  now 
gotten  up  by  a  dozen,  more  or  less,  different  estab- 
lishments. 

The  wagon-maker  buys  his  wheels  of  one  man,  his 
bodies  of  another,  his  tops  of  another. 

Nearly  all  country  shoemakers,  for  new  work  pur- 
chase the  uppers  ready  made  and  the  soles  all  cut, 
from  some  city  firm. 

Blacksmiths  no  longer  make  their  nails,  rarely 
ever  point  them,  and  almost  never  think  of  forging 
a  shoe  or  a  bolt.  All  these  things  they  purchase. 

The  man  who  builds  your  house  buys  the  doors, 
the  shutters,  the  sash,  the  window-frames,  and  the 
brackets  from  different  parties,  ready  made,  as 
he,  of  course,  does  the  metal  furnishings.  The 
casings  come  to  him  all  grooved,  chamfered, 
and  ornamented,  requiring  only  to  be  sawn  and 
nailed. 

This  breaking  up  of  trades  is  a  momentous  indus- 
trial phenomenon,  and  a  very  great  part  of  the  new 


124       NATURE,    USES,    AND   VALUE   OF   MONEY 

exchange  work  which  it  entails  has  to  be  done  by 
means  of  money. 

That  the  progress  of  civilization  everywhere  must 
multiply  exchanges.  In  Asia,  Africa,  and  South 
America  it  will  call  for  incalculable  sums  of  money, 
and  it  is  to  be  remembered  that  civilization  will 
have  to  advance  far  before  it  can  employ  substitutes 
for  money  to  any  extent. 

That  those  best  able  to  get  credit  use  it  least.  In 
all  the  wealthiest  countries  the  proportion  of  cash 
payments  to  total  volume  of  trade  is  steadily  increas- 
ing. With  progress  in  economic  organization,  the 
sphere  of  credit  becomes  less  extensive,  its  operation 
more  intensive  and  useful.  That  people  are  every- 
where 

"  more  and  more  replacing  book  credit  by  bills,  long 
credit  by  short,  mercantile  credits  by  banking  credits, 
and  banking  credits  themselves  they  are  making  more 
widely  effective  and  available  by  specializing  the  organ- 
ization of  financial  institutions  to  particular  branches  of 
industry." 

President  Andrews  then  concludes  the  chapter 
(page  29)  as  follows : 

"  Writers  and  thinkers  of  the  highest  ability  in  increas- 
ing numbers  believe  that  all  necessary,  or  all  attainable, 
fixity  of  general  prices  is  to  come  from  international 
bimetallism.  There  can  indeed  be  no  doubt  that  this 
scheme  would  for  a  long  time  render  extraordinary  ser- 
vice if  it  could  only  be  carried  into  effect.  Silver  has 
proved  to  be  a  much  more  trustworthy  measure  of  value 
than  gold,  and  the  two  together,  if  they  could,  as  I  be- 


THE   APPRECIATION   OF   GOLD  125 

lieve  possible,  be  made  to  circulate  concurrently  at  a 
fixed  ratio  in  all  the  main  commercial  countries,  would 
furnish  a  more  stable  gauge  of  value  than  even  silver 
could  alone." 

Again  Mr.  Andrews,  on  page  45  of  his  same  work, 
repeats : 

*'  For  instance,  nothing  is  commoner  than  to  hear  a 
reasoner  admitting  that  general  prices  have  indeed  fallen, 
but  declaring  that  the  fall  has  been  caused  by  the  cheap- 
ening of  commodities,  not  by  any  appreciation  in  gold. 
This  is  a  contradiction.  If  general  (gold)  prices  have 
fallen,  gold  has  risen,  appreciated.  A  fall  of  general 
prices  is  nothing  else  but  an  elevation  in  the  value  of  the 
money  in  which  they  are  appraised,  and  this  is  equally 
true  whatever  the  cause  of  the  change.  Suppose  the 
new  relation  between  gold  and  goods  to  have  grown 
solely  out  of  the  lessened  cost  of  goods,  it  is  none  the 
less  a  fact  that  gold  has  appreciated,  for  the  appreciation 
of  gold  means  simply  that  a  given  weight  of  it  will  buy 
more  wheat,  meat,  clothing,  etc.,  than  it  would  some 
time  ago. 

"  What  people  seem  to  mean  when  denying  apprecia- 
tion in  gold  while  admitting  that  general  prices  have 
fallen,  is  that  the  altered  form  of  equation  between  gold 
and  commodities  has  not  originated  on  the  gold  side 
of  the  balance,  namely,  has  not  originated  either  in 
any  increase  of  the  effort  needed  to  produce  gold,  or 
in  any  increase  of  the  work  required  of  gold  money  in 
consequence  of  the  disuse  of  silver;  but  has  sprung  up  on 
the  goods  side,  to  wit,  has  come  wholly  from  a  lessening 
of  the  effort  which  men  have  to  put  forth  to  create  com- 
modities. 


126      NATURE,    USES,   AND  VALUE   OF   MONEY 

"  Distinguished  as  are  the  writers  vouching  for  this 
view,  I  cannot  but  think  them  in  error.  Doubtless  the 
cost  of  producing  most  goods  has  declined  since  1873, 
but  there  is  no  evidence  that  it  has  since  then  lowered  a 
whit  more  rapidly  than  between  1850  and  1870,  when 
prices  were  rising  instead  of  falling.  I  venture  to  pro- 
nounce this  an  unanswered  and  unanswerable  argument. 
Another  is,  if  possible,  more  decisive  still.  How  can  a 
regime  of  falling  costs,  which  of  course  means  increas- 
ing plenty,  larger  profits,  higher  wages,  be  also  a  regime 
of  hard  times,  panics,  strikes,  lock-outs,  failures,  in- 
creasing crime  and  increasing  pauperism,  such  as  the 
gold-using  world  has  passed  through  since  1873  ?  " 

Page  47: 

"  That  certain  commodities  have  not  fallen,  and  that 
such  as  have  fallen  have  fallen  unequally,  in  no  wise 
disproves  the  rise  of  gold.  Part  of  the  fall  which  has 
occurred  is  confessedly  owing  to  lowered  costs.  Articles 
thus  affected  have  gone  down  more  than  others.  Wages 
of  skilled  labor  have  perhaps  even  risen  somewhat  as  gold 
has,  and  the  best  city  lots  have  risen  more  than  gold." 

He  then  further  states  that  the  effort  which  must 
be  put  forth  to  get  gold  from  the  earth  is  greater 
than  formerly. 

"  Suppose  the  said  effort  to  be  as  before.  This  would 
prove  the  recent  fall  in  prices  to  be  a  fall  in  costs,  as  so 
many  believe." 

"  Under  this  supposition  the  condition  of  things  will 
be  this:  Gold  has,  say,  forty  or  fifty  per  cent,  more  pur- 
chasing power  than  before,  but  its  production  demands 
no  more  intrinsic  effort  (metaphysical  cost)  than  before, 


THE   APPRECIATION   OF   GOLD  1 27 

while  the  mercantile  or  money  cost  of  the  labor  and 
capital  necessary  in  extracting  it  is  some  twenty-five  per 
cent,  less  than  before.  Now  the  inevitable  result  of 
such  a  situation  would  be  a  vast  increase  in  the  amount 
of  gold  yearly  produced,  whereas  the  amount  produced 
has  greatly  fallen  off  instead  of  increasing.  We  are  dri  ven 
to  conclude  that  our  initial  supposition  was  erroneous, 
and  that  the  difficulty  of  unearthing  a  grain  of  gold  is 
now  greater  than  it  was  in  1873. 

"  When  to  this  is  added  that  from  a  billion  to  a  billion 
and  a  quarter  of  new  gold  money  has  been  called  for  by 
Europe  and  the  United  States  since  1873,  to  say  nothing 
of  the  potential  demand  offered  by  States  now  on  a  paper 
money  basis  but  preparing  to  resume  specie  payments, 
one  need  look  no  further  for  the  reasons  why  gold  units 
will  purchase  more  now  than  twenty  years  ago." 

On  page  5  of  the  same  work  Mr.  Andrews  says : 

"  There  seem  to  be  many  who  would  concede  the  un- 
fairness of  a  monetary  unit  which  admitted  of  falling 
prices  if  assumed  that  the  fall  arose  from  an  increased 
cost  of  production  in  money  itself,  who  allege  the  equity 
of  the  money  provided  the  fall  has  proceeded  from  less- 
ened cost  of  producing  goods.  But  this,  again,  is  an 
untenable  position,  unless  the  just  noted  premise  touch- 
ing the  importance  of  a  stable  monetary  unit  is  false.  It 
can  make  no  difference  why  the  relation  between  money 
and  commodity  has  changed.  The  simple  fact  of  such 
change  is  proof  that  the  money  system  is  imperfect." 

And  on  pages  40  and  41  he  further  says: 

'  That  the  value  of  money  metal,  under  any  system, 
is  fixed  by  the  relation  of  demand  and  supply,  all  admit. 


128      NATURE,    USES,   AND   VALUE   OF   MONEY 

But  while  law  cannot  control  value  independently  of 
supply  and  demand,  it  can  set  free  an  economic  force 
which  will  largely  control  supply  and  demand  themselves. 
"  The  bimetallist  affirms  (i)  that  the  monetary  demand 
and  supply  of  gold  and  silver,  supposing  both  freely 
coined,  in  fixing  the  purchasing  power  of  given  quanti- 
ties of  them,  overwhelmingly  out-influence  the  commodity 
demand  and  supply;  (2)  that  law  can  at  least  establish 
a  legal-tender  and  debt-paying  parity  between  a  given 
quantity  of  gold  and  a  given  quantity  of  silver,  which 
parity  a  treaty  could  extend  throughout  any  number  of 
States;  (3)  that,  since  men  are  wont  to  discharge  their 
pecuniary  obligations  as  easily  as  they  can,  the  existence 
of  such  legal-tender  and  debt- paying  parity  would,  in 
case  this  legal  parity  should  ever  for  any  reason  fail  to 
match  the  commercial  parity,  stimulate  the  demand  for 
the  cheaper  metal,  appreciate  it,  and  so  tend  to  identify 
the  parities  again;  (4)  that  if  the  field  of  legal  parity  is 
large,  embracing  in  its  bimetallic  basin  a  third  or  even  a 
quarter  of  the  world's  gold  and  silver,  unless  the  value- 
ratio  between  the  two  metals  denoted  by  the  legal  parity 
is  wildly  at  variance  with  the  ratio  in  quantity  between 
the  total  stocks  of  the  two,  the  aforesaid  stimulus  of  de- 
mand for  the  cheaper  will  overbear  every  tendency  to 
part  the  parities  named,  and  maintain  the  unit  quantity 
of  gold  and  the  unit  quantity  of  silver  perpetually  at  the 
same  value." 

§  2.  The  several  points  presented  in  the  foregoing 
quotations  may,  I  think,  be  stated,  generally,  in  the 
following  propositions: 

(i)  That  even  if  a  fall  of  general  prices  is  the  re- 
sult of  a  cheapening  of  commodities,  yet  the  cause 
of  the  fall  in  prices  is  the  appreciation  of  gold ;  for 


THE  APPRECIATION   OF   GOLD  1 29 

an  appreciation  of  gold  simply  means  that  a  given 
quantity  of  it  will  buy  more  wheat,  meat,  clothing 
etc.,  than  it  did  before. 

(2)  That   a    fall   in   prices    does   not  necessarily 
follow  from  a  great  reduction  in  the  cost  of  producing 
commodities. 

(3)  That  the  use  of  credit  as  a  substitute  for 
money  is  growing  less  and  less,  and  that,  notwith- 
standing the  use  of  credit  and  of  the  various  econo- 
mies in  the  use  of  money,  the  tendency  of  the  age 
is  markedly  in  the  direction  of  a  larger  demand  for 
metallic  money,  and  this  demand,  with  the  demand 
for  new  gold  for  the  currencies  of  several  European 
nations,  has  been  very  inadequately  met  by  the  pro- 
duction of  gold  the  last  twenty  years. 

(4)  That  the  demonetization   of  silver  by  Ger- 
many, followed  by  the  action  of  the  Latin  Union  in 
restricting  the  coinage  of  silver  on  private  account, 
has  caused  the  fall  in  prices — the  fall  in  gold  prices. 

(5)  That  with  the  restoration  of  bimetallism,  the 
monetary  demand  and  supply  of  gold  and  silver, 
supposing  both  freely  coined,  in  fixing  the  purchas- 
ing power  of  given  quantities  of  them,  will  over- 
whelmingly out-influence  the  commodity  demand 
and  supply,  and  will  secure  all  necessary  fixity  of 
general  prices. 

§  3.  I  am  not  going  into  any  defence  of  gold.  I 
shall  neither  praise  nor  condemn  it.  It  is  a  matter 
of  no  consequence,  whatever,  what  my  opinion  may 
be  as  to  the  desirability  of  using  gold  as  our  primary 
money  and  as  our  standard  of  value ;  nor  is  it  of  any 
consequence  what  my  opinion  may  be  as  to  the  use 


130      NATURE,    USES,    AND   VALUE   OF   MONEY 

or  disuse  of  silver  as  primary  money.  I  find  gold 
actually  used  as  our  primary  money  and  as  our 
standard  of  value,  and  I  assume  that  the  commercial 
world  so  uses  gold  because  it  finds  it  convenient  and 
advantageous  to  do  so;  for,  if  it  did  not,  it  could 
readily  make  a  change  and  use  some  other  commo- 
dity; and  there  is  nothing  to  prevent  it  from  using 
silver  for  such  money  and  as  such  standard  if  it 
wants  to  use  it  for  these  purposes.  The  law  does 
not  prevent  the  commercial  world  from  so  using 
silver  if  it  so  wishes.  All  international  payments 
might  be  made  in  silver  bullion  as  well  as  in  gold 
bullion  if  only  the  commercial  world  would  accept 
the  silver  for  that  purpose;  but  the  trouble  is  that 
the  commercial  world  refuses  so  to  use  silver,  and 
insists  upon  using  gold.  Since,  then,  gold  is  the 
primary  money  and  the  standard  of  value,  and  since 
it  is  charged  that  prices  have  greatly  fallen,  and  that 
the  appreciation  of  gold  has  been  the  cause  of  such 
fall  in  prices,  it  becomes  pertinent,  in  a  work  of  this 
kind,  to  inquire  whether,  assuming  that  prices  have 
fallen,  all  the  fall  in  prices,  or  the  whole  of  the  fall 
in  general  prices  has  been  caused  by  the  apprecation 
of  gold,  and  whether  gold  should  be  held  responsible 
(as  it  is  charged  to  be)  for  all  the  evil  consequences 
alleged  to  have  been  the  result  of  such  fall  in  prices. 
Mr.  Walker's  reasons  for  charging  all  of  the  fall  in 
prices  to  changes  in  the  value  of  gold  have  at  least 
the  merit  of  novelty.  His  reasons  are  that  political 
economists  have  treated  the  two  expressions — fall  in 
prices  and  appreciation  of  gold — as  synonymous,  and 
that  no  matter  how  just  may  be  the  distinction  be- 


THE   APPRECIATION   OF   GOLD  131 

tween  the  two  causes  which  might  operate  at  the 
same  time  from  different  directions  to  produce  a  fall 
of  gold  prices,  it  would  be  impracticable  to  divide 
the  result  accordingly.  As  to  the  first  reason,  it  is 
sufficient  to  say  that,  because  a  certain  result,  which 
is  the  effect  of  either  the  one  or  the  other  of  two 
causes,  is  given  a  certain  name,  or  two  certain  names 
which  are  synonymous,  furnishes  no  reason  for  hold- 
ing that  the  result  in  all  cases  is  the  effect  of  but 
one  of  the  causes;  particularly,  it  cannot  be  so  held 
when  it  is  shown  that  the  effect  is  the  result  of  the 
other  cause ;  and  as  to  the  second  reason,  that  be- 
cause it  may  be  difficult  to  divide  the  result  and 
determine  which  of  the  causes  is  responsible  for  the 
result,  therefore,  one  of  the  causes  must  be  charged 
with  the  whole  responsibility  for  the  result,  I  have 
merely  to  say,  that  a  mere  statement  of  it  shows 
its  unjustness. 

However,  Mr.  Walker  does  admit  the  justness  of 
the  distinction  between  the  two  causes,  and  that  an 
appreciation  of  gold  may  sometimes  be  due  to  causes 
affecting  the  metal,  and  sometimes  to  causes  affect- 
ing commodities,  sometimes  to  both  in  conjunction. 
But  since  he,  after  concluding  that  the  fall  of  prices 
since  1873  was  due  partly  to  both  causes,  that  is, 
partly  to  causes  affecting  gold  itself,  and  partly  to 
causes  affecting  commodities  themselves,  goes  on  in 
his  argument  and  lays  the  whole  blame,  for  the  fall 
of  prices  and  for  all  the  train  of  evils  and  calamities 
which,  he  says,  were  caused  by  such  fall  in  prices,  to 
an  increase  in  the  value  of  gold  on  account  of  its 
growing  scarcity,  we  cannot  do  otherwise  than  treat 


132      NATURE,    USES,    AND   VALUE   OF   MONEY 

his  argument  as  if  he  made  no  distinction  whatever 
between  the  two  causes,  just  the  same  as  Mr.  An- 
drews makes  no  such  distinction. 

Professor  Andrews  lays  down  three  propositions 
as  to  how  money  may  be  appreciated : 

(1)  Because  the  supply  of  it  has  decreased,  as  by 
losses  of,  or  by  new  difficulty  in  extracting  precious 
metal;  or 

(2)  Because  the  demand  for  it  has  increased,  as 
by  enlargement  to  the  volume  of  work  for  money  to 
do;    or  by  the  lessening  of  credit  and  barter  ex- 
changes ;  or 

(3)  Because  while  those  two  conditions  remain 
the    same,    the    intrinsic    cost    of   producing   given 
amounts  of  other  articles  than  money  has  decreased. 

Mr.  Andrews's  first  and  second  propositions  are 
nothing  more  than  the  quantity  theory,  which  has 
been  disposed  of  in  the  fifth  chapter  of  this  work; 
and  this  quantity  theory  having  been  shown  to  be 
incorrect  and  unsound  in  principle,  it  follows  that 
these  two  propositions  made  by  Mr.  Andrews  are 
incorrect  and  unsound  in  principle.  The  truth  is, 
that  neither  the  supply  of,  nor  the  demand  for, 
money  as  money  has  anything  to  do  with  prices, 
and  this  has  been  abundantly  shown  in  the  said  fifth 
chapter  of  this  work.  The  first  proposition  is,  how- 
ever, unsound  under  the  quantity  theory.  If  that 
theory  be  correct,  then  the  supply  of  money,  even 
though  there  were  losses  of  and  increased  difficulty 
in  extracting  precious  metal,  would  not  be  decreased. 
The  supply  of  money  would  remain  the  same,  and 
it  is,  under  this  theory,  only  the  actual  increase  or 


THE  APPRECIATION   OF   GOLD  133 

decrease  of  the  supply  of  money  which  affects  its 
value;  if  the  supply  of  money  remains  the  same  but 
a  subsequent  increase  to  the  volume  of  work  for 
money  to  do  arises,  then,  it  is  the  increase  of  the 
volume  of  work  money  has  to  do,  and  not  the  losses 
of  or  the  new  difficulty  of  extracting  precious  metal 
which  causes  the  fall  in  prices;  or,  as  Mr.  Andrews 
calls  it,  the  appreciation  of  money.  If,  however, 
Mr.  Andrews  means  that  the  value  of  the  money 
depends  upon  the  value  of  the  metal  contained  in 
it,  and  hence,  if  through  scarcity  or  a  diminished 
supply  of  the  metal,  the  value  of  the  metal  should 
be  increased,  the  value  of  the  money  will  also  be  in- 
creased— appreciated — then  I  am  in  perfect  accord 
with  him.  In  this  sense  the  proposition  is  sound, 
but  it  is,  as  shown  in  the  already  mentioned  fifth 
chapter  of  this  work,  absolutely  inconsistent  with, 
and  antagonistic  to,  the  quantity  theory. 

We  now  proceed  to  discuss  Mr.  Andrews's  third 
proposition,  which  is  as  follows:  That  money  will  be 
appreciated  in  value  although  the  supply  of,  and  the 
demand  for,  it  remain  the  same,  if  the  intrinsic  cost 
of  producing  given  amounts  of  other  articles  than 
money  has  decreased. 

It  will  be  admitted  for  the  present,  for  the  pur- 
poses of  this  discussion,  that  there  has  been  a  fall  in 
the  prices  of  many  commodities  since  1873.  The 
bimetallist  admits  that  the  cost  of  producing  most 
goods  and  productions  has  greatly  declined  since 
1873.  We  then  start  out  in  the  discussion  with 
these  two  important  facts  admitted.  The  question 
then  is,  is  this  fall  in  prices  due  to  the  appreciation 


134      NATURE,    USES,    AND   VALUE   OF   MONEY 

of  gold,  or  is  it  due  to  the  lowered  cost  of  pro- 
duction and  to  an  increased  supply  of  commodities, 
or  to  both  ?  that  is,  is  the  fall  of  prices  due  to 
causes  affecting  gold,  or  to  causes  affecting  the 
commodities  ?  The  fall  of  prices  is  an  effect,  and, 
like  every  other  effect,  must  have  a  cause.  Now, 
then,  what  cause  produced  this  effect  ? 

The  bimetallist  insists  that,  although  the  fall  in 
prices  has  grown  out  of,  or  resulted  solely  from,  the 
lessened  cost  of  production  of  the  goods,  still  the 
fall  of  prices  was  or  is  caused  by  the  appreciation  of 
gold,  and  he  argues  that,  it  is  vain  to  say  that  the 
goods  have  shrunk,  but  the  yardstick  remained 
fixed ;  that  right  in  the  very  fact  of  money  remain- 
ing fixed  lies  its  vice,  since  its  sole  seal  and  creden- 
tial as  a  just  scale  'proceeded  from  its  relation  to 
general  commodity.  Change  in  that  relation  is  one 
indivisible,  indefensible  fact,  whether  originating  in 
the  money  term  of  the  equation  or  in  the  commodity 
term."  This  is  the  whole  of  the  bimetallisms  argu- 
ment on  this  point.  The  remainder  of  the  above 
quotations  are  merely  facts  and  reasons  given  in 
support  of  the  argument. 

They  say  that  in  the  very  fact  of  money  remain- 
ing fixed,  etc.  I  presume  they  mean  by  this,  that 
in  the  very  fact  of  the  value  of  money  remaining 
fixed  lies  its  vice.  Now,  if  the  value  of  money  re- 
mains fixed,  as  the  length  of  the  yardstick  remains 
fixed,  then  it  would  be  impossible  for  the  value  of 
money  to  change;  an  increase  of  supply  or  of  de- 
mand could  not  change  its  value,  any  more  than  an 
increase  of  the  supply  of  or  of  the  demand  for  yard- 


THE   APPRECIATION   OF   GOLD  135 

sticks  could  change  the  length  of  the  yardstick.  If, 
then,  there  would  ever  be  any  change  in  the  relation 
between  the  value  of  money  and  the  value  of  com- 
modities, such  change  must,  of  necessity,  be  in  the 
commodities  and  not  in  the  money;  and  with  no 
degree  of  propriety  could  it  be  said  that  the  value 
of  money  had  appreciated,  for,  in  the  case  supposed, 
that  would  be  impossible,  and  the  impossible  could 
not  be  the  cause  of  the  change.  The  cause  would 
simply  be  in  the  lowered  value  of  the  commodities 
themselves,  for  they,  and  they  alone,  could  change 
in  value.  Take  for  illustration  the  piece  of  cloth 
and  the  yardstick  mentioned  by  Mr.  Andrews.  If 
that  piece  of  cloth  were  measured  to-day  and  found 
to  contain  a  given  number  of  yards,  and  to-morrow 
a  piece  were  taken  off  the  cloth  and  its  whole  length 
reduced,  and  afterwards  the  piece  were  again  meas- 
ured and  found  to  contain  a  less  number  of  yards 
than  before,  would  anyone  say  that  the  cause  of 
the  piece  of  cloth  being  shorter  was  the  appreciation 
of  the  length  of  the  yardstick  ?  And  yet  this  could 
as  well  be  said  of  the  yardstick  as  of  the  money  in 
the  case  put  above.  It  is  this  persistently  insisting 
upon  subjecting  the  metal  used  as  money  to  laws  to 
which  other  commodities  are  not  subject,  which 
makes  so  much  trouble  and  confusion  of  thought  in 
questions  relating  to  money.  But  the  value  of 
money  is  not  fixed  as  the  length  of  the  yardstick 
is  fixed,  for  money  is  subject  to  the  same  changes  in 
value  as  the  metal  contained  in  it  is;  if,  on  account 
of  changes  in  the  supply  of,  or  demand  for,  the 
metal  its  value  rises  or  falls,  the  value  of  money  rises 


136     NATURE,    USES,   AND   VALUE   OF   MONEY 

or  falls  with  it.  The  value  of  the  metal  is  relative, 
but  so  is  the  value  of  every  other  commodity;  for 
value  is  only  a  relation.  Now,  when  we  come  to 
measuring  the  value  or  the  price  of  a  commodity 
with  money,  what  we  really  do  is  to  ascertain  how 
many  times  the  value  of  the  metal  contained  in  a 
certain  piece  of  money,  fixed  upon  as  the  measure, 
is  contained  in  the  value  of  the  commodity;  that  is, 
how  many  times  the  value  of  a  piece  of  metal  of  a 
certain  weight  and  fineness  is  contained  in  the  value 
of  the  commodity,  and  the  result  gives  us  the  price. 
But  it  necessarily  results,  and  such  is  always  the 
case,  that  while  money  is  measuring  the  price  of  the 
commodity,  the  commodity  is  measuring  the  value 
of  the  money,  for  the  measurement  is  but  a  compari- 
son, and  each  is  compared  and  measured  with  the 
other,  and  the  one  compares  and  measures  just  as 
much  as  the  other  does.  The  value  of  the  piece  of 
metal  is  found  to  be  contained  a  given  number  of 
times  in  the  commodity,  and  the  commodity  is 
found  to  contain  the  value  of  the  piece  of  metal 
a  given  number  of  times.  Now,  if  at  any  subse- 
quent measurement  or  comparison,  it  is  found  that 
the  relation  between  the  value  of  the  piece  of  metal 
and  the  value  of  the  commodity  has  changed,  as, 
for  instance,  that  the  value  of  the  piece  of  metal  is 
contained  a  less  number  of  times  in  the  value  of  the 
commodity,  or,  in  other  words,  that  the  price  of 
the  commodity  has  fallen,  then  the  important  ques- 
tion arises,  what  was  the  cause  of  the  change  ?  Was 
it  on  account  of  something  relating  to  the  piece  of 
metal,  or  of  something  relating  to  the  commodity? 


THE   APPRECIATION   OF   GOLD  137 

if  the  former,  then  the  value  of  money  has  risen ;  if 
the  latter,  then  the  value  of  the  commodity  has 
fallen ;  but,  if  the  latter  is  the  cause,  it  can  never  be 
correct  to  say,  that  the  value  of  the  former,  the  piece 
of  metal,  has  risen  or  appreciated,  and  to  charge  the 
whole  fault  upon  the  piece  of  metal;  or,  if  the  cause 
of  the  fall  in  price  was  on  account  of  something  con- 
nected with  the  piece  of  metal,  it  can  never  be  correct 
to  say  that  the  fall  was  on  account  of  something 
connected  with  the  commodity.  Nor  is  it  any  an- 
swer to  this  to  say  that,  since  the  sole  seal  and  cre- 
dential of  money  as  a  just  scale  proceeds  from  its 
relation  to  general  commodity  and  that  change  in 
that  relation  is  one  indivisible  fact,  because  as  money 
measures  the  commodity  so  the  commodity  meas- 
ures and  is  the  scale  of  money,  and  it  may  with  equal 
propriety  be  said,  since  commodity's  sole  seal  and 
credential  as  a  just  scale  proceeds  from  its  relation 
to  money,  change  in  that  relation  is  one,  indivisible, 
indefensible  fact,  whether  originating  in  the  com- 
modity term  of  the  equation,  or  in  the  money  term, 
and  from  this  insist  that,  although  the  change  in 
the  price  or  in  the  relation,  was  wholly  due  to  causes 
affecting  the  money,  the  fall  in  price  was  caused  by 
the  depreciation  of  the  commodity  in  value.  A 
commodity  has  its  purchasing  power  as  well  as 
money,  and  if  the  fall  in  the  price  of  it  is  the  result 
of  causes  affecting  money,  the  commodity  will  pre- 
serve the  same  value,  even  though  it  brings  a  less 
price  in  money;  because  the  amount  of  money  it 
sells  for  will  have  the  same  purchasing  power  as  the 
larger  amount  of  money  for  which  it  would  have 


138      NATURE,    USES,   AND   VALUE   OF   MONEY 

previously  sold  would  have  then  had;  therefore  the 
commodity  has  lost  none  of  its  value — purchasing 
power — by  reason  of  such  fall  in  price. 

If,  on  account  of  drouth'  or  from  any  other  cause, 
there  is  a  great  failure  of  the  crops  of  all  agricultural 
products  in  one  country,  and  the  prices  of  such  pro- 
ducts are  enhanced  in  that  country,  while,  at  the 
same  time,  by  reason  of  a  bountiful  harvest  in 
another  country  the  prices  of  such  products  fall  in 
that  other  country,  if  the  appreciation  of  money  is 
the  cause  of  the  rise  in  such  prices,  then,  the  de- 
preciation of  money  must,  at  the  same  time,  be  the 
cause  of  the  fall  in  prices.  I  suppose  the  way  out 
is  to  insist  that  either  way  gold  is  at  fault. 

Take  the  case  put  by  Mr.  Walker  in  his  criticism 
of  Mr.  Wells,  where  a  country  has  not  felt  the 
slightest  influence  from  inventions,  discoveries,  and 
improvements  in  the  arts,  whereby  the  cost  of  pro- 
ducing all  manufactured  products  is  reduced,  and, 
consequently,  the  prices  of  such  manufactured  pro- 
ducts have  either  remained  stationary,  or  have  risen, 
or  at  all  events  are  higher  than  they  are  in  a  country 
where  the  inventions,  discoveries,  and  improvements 
in  the  arts  are  developed  and  applied  to  the  highest 
degree  in  the  manufacture  of  products ;  what  will  be 
said  to  have  caused  both  the  rise  and  the  fall  of 
prices  at  the  same  time  ?  Will  it  still  be  insisted 
that  both  have  been  caused  by  the  appreciation  and 
depreciation  of  money  at  the  same  time  ?  The  fair- 
ness of  these  examples  cannot  be  attacked  because 
the  rise  and  the  fall  of  prices  are  located  in  different 
countries,  for  the  same  will  apply  with  equal  force 


THE   APPRECIATION   OF   GOLD  139 

to  different  sections  of  the  same  country.  Nor  can 
exception  be  taken  to  them  because  it  only  relates 
to  a  portion  of  the  existing  commodities,  because 
agricultural  and  manufactured  products  embrace  by 
far  the  greater  part  of  all  productions.  No  one  has 
ever  pretended  that  the  prices  of  all  productions  have 
fallen,  much  less  has  any  such  fall  ever  been  proven. 
What  is  contended  is  that  there  has  been  a  general 
fall;  indeed  I  am  not  so  sure  but  that  Mr.  Andrews 
means  the  fall  of  any  one  or  more  products;  but  of 
this  again ;  but  even  if  the  suppositions  case  of  but 
one  commodity  were  put,  I  think  that  would  be  fair 
enough  as  an  example,  because  a  general  fall  can 
only  be  ascertained  by  the  separate  measurement  or 
comparison  of  each  commodity  included  in  general 
commodity. 

Mr.  Andrews  in  his  third  proposition  speaks  of 
"  given  amounts  of  other  articles  than  money." 
Literally,  this  would  mean  any  limited  number  of 
articles  or  even  one  article,  while  in  the  next  para- 
graph he  speaks  of  money,  "as  a  just  scale  proceeded 
from  its  relation  to  general  commodity."  Just 
which  he  means  I  am  unable  to  determine ;  but  if  he 
means  general  commodity,  he  is  answered ;  if  he 
means  a  limited  number  of  commodities,  then  while 
the  prices  of  some  commodities  may  have  fallen  the 
prices  of  others  may  have  risen,  and  the  question 
under  his  theory  arises,  whether  gold  or  money  has 
appreciated  or  depreciated.  Because  prices  have 
fallen  it  is  all  wrong,  is  only  "  sticking  in  the  bark," 
to  refuse  to  go  further  and  ascertain  the  true  cause 
of  such  fall,  and  it  is  a  still  greater  wrong  to  charge 


I4O      NATURE,    USES,   AND  VALUE   OF   MONEY 

all  the  fault  to  gold  in  every  case,  no  matter  what 
may  have  been  the  cause. 

§  4.  The  next  proposition  as  laid  down  in  the 
second  section  of  this  chapter  is,  (2)  That  a  fall  in 
prices  does  not  necessarily  follow  from  a  great  reduc- 
tion in  the  cost  of  producing  commodities,  or,  as 
Mr.  Andrews  states  it,  it  was  not  necessary  that 
general  prices  should  fall  because  of  the  decreasing 
intrinsic  cost  of  manufactured  and  some  other  com- 
modities. 

Mr.  Walker,  after  stating  that  many  monometal- 
lists  have  undertaken  to  establish  the  proposition 
that  there  has  been  no  true  appreciation  of  gold ; 
that  its  increasing  power  in  exchange  is  wholly 
due  to  the  multiplication  of  commodities  and  their 
diminishing  cost  of  production,  refers  to  the  work 
of  Mr.  David  A.  Wells,  Recent  Economic  Changes. 
Then  Mr.  Walker  says : 

"  that  such  a  thesis  as  that  which  Mr.  Wells,  in  com- 
mon with  Professor  Laughlin  and  Mr.  Atkinson,  has 
undertaken  to  defend  is,  on  its  very  face,  monstrous  and 
absurd.  A  number  of  nations  have  largely  diminished 
(relatively)  their  use  of  silver;  and  have  largely  increased, 
both  relatively  and  absolutely,  their  use  of  gold.  This 
must  have  had  an  effect  to  lower  prices,  expressed  in 
terms  of  gold." 

Mr.  Walker  then  follows  with  a  criticism  of  Mr. 
Wells's  book.  It  is  not  necessary  for  me  to  enter 
into  any  defence  of  either  Mr.  Wells,  Professor 
Laughlin,  or  Mr.  Atkinson  ;  each  of  these  gentlemen 
is  abundantly  able  to  take  care  of  himself.  I  have 


THE   APPRECIATION   OF   GOLD  14! 

not  enjoyed  either  the  pleasure  or  the  profit  of  a 
perusal  of  Mr.  Wells's  book,  but  I  conclude  from  the 
nature  of  Mr.  Walker's  criticisms  that  Mr.  Wells 
must  have  made  out  an  unusually  strong  case  against 
bimetallism.  The  first  criticism  is  that  many  of  the 
instances  adduced  by  Mr.  Wells  are  of  such  a  strik- 
ing character  as  to  create  an  altogether  undue  im- 
pression upon  the  mind  of  the  reader.  Mr.  Walker 
does  not  explain  what  these  striking  characteristics 
are,  but  he  does  not  state  that  the  instances  given 
are  not  true  ;  hence  I  conclude  that  what  Mr.  Walker 
means  is  that  the  instances  given  are  so  strong  and 
convincing  that  they  are  apt  to  convey  the  impres- 
sion upon  the  mind  of  the  reader  that  in  all  other 
instances  the  fall  of  prices  was  due  to  the  decreased 
cost  of  production. 

The  next  criticism  is,  that  whole  classes  of  in- 
stances which  Mr.  Wells  gives  of  a  greatly  reduced 
cost  of  production  are  such  as  concern  only  the 
profits  of  the  most  favored  producers,  and  are  not 
such  as  affect,  perhaps  in  the  slightest  degree,  the 
prices  at  which  commodities  are  sold,  which,  as  is 
well  known,  are  determined  by  the  cost  of  produc- 
tion under  the  least  fortunate  conditions.  Mr. 
Walker  does  not  explain  of  what  commodities  these 
whole  classes  consist,  but  he  is  certainly  mistaken  as 
to  the  decreased  cost  of  production  not  having  the 
effect  of  decreasing  prices,  for  competition  would, 
of  itself,  bring  about  this  result,  and  the  price 
is  not  determined  by  the  cost  of  production  under 
the  least  fortunate  conditions,  and  cannot  be,  be- 
cause the  competition  of  the  more  fortunate 


142      NATURE,    USES,   AND   VALUE   OF   MONEY 

producers  would  soon  drive  out  the  unfortunate 
one. 

The  next  criticism  is,  that  many  of  the  most 
impressive  examples  of  the  increased  power  of 
human  labor  and  capital  are  drawn  only  from  limited 
fields  or  single  countries,  while  vastly  larger  terri- 
tories have  scarcely  felt  the  slightest  influence  from 
such  inventions,  discoveries,  and  improvements  in 
the  arts.  If  the  field  of  decreased  cost  of  production 
is  limited,  this  cannot  make  the  examples  wrong, 
because  the  decrease  of  the  cost  of  production  will 
decrease  the  prices,  not  only  at  the  place  of  produc- 
tion, but,  also,  over  the  whole  field  of  consumption ; 
the  only  difference  between  the  prices  at  the  place 
of  production  and  at  places  distant  therefrom  would, 
in  a  state  of  freedom  in  trade,  be  the  cost  of  trans- 
portation and  the  profits  of  the  various  middlemen. 
If  it  be  so  that  vast  territories  have  scarcely  felt  the 
influence  of  the  decreased  cost  of  production,  then 
in  these  territories  gold  has  not  appreciated. 

The  last  criticism  is,  that  Mr.  Wells  overlooks 
the  fact  that  during  the  twenty-  or  twenty-five-year 
period  preceding  1873,  during  all  which  time  prices 
were  rising,  enormous  developments  of  the  same 
general  character  in  the  increase  of  human  power 
and  production  took  place.  This  brings  us  to  one 
of  the  strongest  points  made  by  the  bimetallist.  He 
claims  that  the  decreased  cost  of  production  was  just 
as  great  during  the  period  of  1850  to  1873  as  during 
the  period  since  1873,  and  yet  from  1850-1873  prices 
rose,  while  they  fell  since  1873,  and  President  An- 
drews pronounces  this  to  be  "  an  unanswered  and 


THE  APPRECIATION   OF   GOLD  143 

unanswerable  argument. "  The  point  makes  neces- 
sary a  brief  consideration  of  the  history  of  the 
production  of  precious  metals,  of  prices,  and  of 
panics  during  the  period  1850-1873. 

As  there  were  three  commercial  crises,  or  panics, 
during  the  period  under  consideration, — one,  and  a 
very  severe  one,  in  1857,  one  rather  mild  one  in 
1866,  and  the  most  severe  one  in  all  our  financial 
history  occurred  in  1873, — the  whole  period  will,  for 
convenience,  be  divided  into  subperiods:  1850-1857, 
1857-1866,  and  1867-1873.  The  increased  produc- 
tion of  gold  consequent  upon  its  discovery  in  Cali- 
fornia and  Australia  began  to  manifest  itself  in  1850. 

For  the  period  1831-1 840  the  average  annual  pro- 
duction of  gold  in  the  world  was  .  .  .  $  13,484,000 

For  the  period  1841-1850  it  was      ....  36,393,000 

For  the  period  1851-1855  it  was      ....  132,513,000 

And  for  the  years  1856  and  1857  it  was  .         .         .  134,083,000 

For  the  period  1850-1857  the  whole  production  was 

about 967,000,000 

For  the  period  1858-1866  the  average  annual  pro- 
duction was  about  ......  127,500,000 

and  the  whole  production  was  about        .         .         .  1,147,000,000 

For  the  period  1867-1873  the  average  annual  pro- 
duction was  about  ......  123,200,000 

and  the  whole  production  was  about        .         .         .  865,177,000 

For  the  whole  period  1850-1873  the  whole  produc- 
tion was  about .  .  .  .  -  .  .  .  3,000,000,000 

and  the  average  annual  production  was  about .         .  124,130,000 

While  we  are  at  this  production  of  gold  we  may  as 
well  continue  it  from  1873  to  the  present;  it  will 
save  time  to  do  so.  The  lowest  production  during 
this  period  was  from  1881-1885,  when  the  average 


144      NATURE,    USES,   AND   VALUE   OF   MONEY 

annual  production  fell  from  $115,577,000  in  1873 
to  $99,116,000. 

After  1885,  the  production  rapidly  increased  until 
the  year  1896  when  it  reached  the  enormous  figure 
of  $202,956,000,  vastly  larger  than  any  year  during 
the  period  1850-1873. 

For  the  period  1874-1885  the  whole  production  was,  $1,298,667,000 
and  the  average  annual  production  was  something 

over 108,000,000 

For  the  period  1886-1890  the  whole  production  was 

about ,  564,500,000 

and  the  annual  average  production  was  about .  .  113,000,000 

The  whole  production  for  the  period  1874-1890  was 

about        ........       1,863,000,000 

and  the  annual  average  production  for  the  same 

period  was  about      ......  109,600,000 

For  the  period  1891-1896  the  whole  production  was 

over         ........       1,018,230,000 

and  the  annual  production  was  over  .  .  .  169,700,000 

For  the  whole  period  from  1873  to  1896  the  whole 

production  was  about        .....       2,881,373,000 

and  the  average  annual  production  was  about .         .  125,300,000 

According  to  Soetbeer,  the  index  number  for  the  prices  of  114 

articles  for  the  period  1847-1850  was        ....          100.00 

In  1857  it  was          ........          130.11 

"  1866  "  "  125.85 

"  1873  "  " 138.28 

Showing  a  great  rise  from  1850  to  1857,  a  slight 
fall  in  1866,  and  a  still  greater  rise  up  to  1873,  when 
it  reached  the  highest  point,  and  probably  the  high- 
est point  of  the  present  century.  Of  course  prices 
fell  some  after  the  panic  of  1857  and  after  the  panic 
of  1866,  commenced  rising  again  between  1857  and 
1866,  and  between  1866  and  1873,  and>  naturally,  as 


THE  APPRECIATION   OF   GOLD  145 

the  panic  of  1873  was  by  far  the  most  severe  of  all, 
prices  would  depreciate  more  after  it  than  after  the 
previous  panics. 

Now,  although  there  may  have  been  just  as  great 
improvement  in  production  and  in  the  increase  of 
human  power,  and  relatively  as  great  a  lessened  cost 
of  production  during  the  period  1850-1873,  as  there 
has  been  since  1873  (which  I  by  no  means  admit, 
except  for  the  purposes  of  the  argument),  yet  this 
lessened  cost  of  production,  1850-1873,  was  accom- 
panied by  the  immense  and  unprecedented  increase 
in  the  production  of  gold,  and  this  vast  increase  of 
gold  was  not  only  sufficient  to  overcome  all  the  fall 
of  prices  on  account  of  decreased  cost  of  production, 
but  was  also  sufficient  to  actually  increase  prices 
above  what  they  would  have  been  had  there  been 
no  lessened  cost  of  production,  and  this  fully  ac- 
counts for  the  rise  of  prices  during  the  period  1850- 
1873.  On  the  other  hand,  while  admittedly  there 
has  been  a  greatly  lessened  cost  of  production  since 
J873,  yet  accompanying  for  a  time  this  lessened 
cost  was  a  decrease  in  the  production  of  gold  as 
compared  with  the  production  prior  to  1873.  Now, 
this  decrease  in  the  production  of  gold  since  1873 
was  not  great  enough  to  cause  any  rise  in  the  value 
of  gold  itself.  The  average  annual  production  prior 
to  1873  was  $124,130,000.  The  average  annual  pro- 
duction during  the  period  1873  to  1890  was  $109,- 
600,000,  and  the  average  annual  production  during 
the  period  1873  to  1896  was  $125,300,000.  Cer- 
tainly, these  decreases  in  production  were  not  suffi- 
cient, considering  the  large  supply  of  gold  in  the 


146      NATURE,    USES,   AND   VALUE   OF   MONEY 

world,  to  reduce  its  supply  to  such  an  extent  as  to 
cause  a  real  appreciation  of  gold  itself;  but,  while 
they  would  not  cause  an  appreciation  of  gold  itself, 
still,  the  annual  production  of  gold  was  not  sufficient 
to  keep  on  increasing  the  supply  to  such  an  extent 
as  to  cause  a  depreciation  of  gold,  to  meet  and 
counteract  the  great  tendency  of  prices  to  fall  on 
account  of  the  increased  supply  of  commodities,  and 
of  the  lessened  cost  of  production  of  commodities; 
and  this  left  the  increased  production  and  supply  of 
commodities  and  the  lessened  cost  of  the  production 
of  commodities  free  to  operate  without  any  check, 
hindrance,  or  counteracting  influence,  and  to  give 
full  effect  to  their  tendency  to  decrease  prices. 
This  is  sufficient  to  account  for  the  differences  in 
prices  between  1850-1873  and  since  1873;  and  it 
clearly  shows  that  there  has  been  no  real  apprecia- 
tion of  gold,  and  that  the  alleged  fall  in  prices  since 
1873  has  not  been  due  to  any  cause  affecting  gold, 
but  wholly  to  causes  relating  solely  to  commodities. 
It  is  no  answer  to  this  to  say  that,  while  it  may  be 
true  that  the  production  of  gold  since  1873  has  been 
sufficient  to  maintain  its  value,  or  rather  to  prevent 
its  appreciation,  in  the  absence  of  any  unusual  de- 
mand, yet  that  the  unusually  great  demand  for  gold 
for  monetary  purposes  since  1873  was  sufficient  to 
cause  its  appreciation.  This  is  no  answer  at  all,  be- 
cause, as  has  been  shown  in  the  immediately  pre- 
ceding chapter  of  this  work,  the  monetary  demand 
(even  admitting  that  there  was  an  unusual  monetary 
demand,  which  is  denied)  for  gold  will  not  cause  an 
increase  of  its  price  or  of  its  purchasing  power. 


THE   APPRECIATION   OF   GOLD  147 

As  to  hard  times,  panics,  strikes,  lockouts,  fail- 
ures, crime  and  pauperism,  these  have  been  no  worse 
and  no  greater  relatively  since  1873  than  before. 
We  had  all  these  things,  and  in  plenty,  between 
1850  and  1873.  Those  very  times,  of  increasing 
prices,  which  Mr.  Walker  says  are  a  blessing  and 
Mr.  Andrews  says  are  a  curse,  brought  on  the  most 
severe  panic  in  our  history,  and  caused  more  business 
distress  and  suffering  than  any  subsequent  times  have. 

§  5.  We  come  now  to  the  third  proposition  as 
stated  in  the  second  section  of  this  chapter. 

The  bimetallist,  in  his  endeavors  to  minimize  the 
effects  of  credit  and  the  other  various  economies  in 
the  use  of  money,  and  in  order  to  show  that  credit 
and  these  economies  do  not  accomplish  as  great  a 
saving  of  money  as  is  generally  supposed,  advances 
the  "following  reasons  in  support  of  his  contention: 

(1)  That  credit  is  limited  and  controlled  by  the 
changing  dimensions  of  the  basis  of  cash  on  which 
it  rests,  and  that  through  the  bank  reserves  permit- 
ting  an    expansion    or    curtailment    of   credit,    the 
supplies  of  the  standard  metal  exert  an  important 
influence  on  prices. 

(2)  That  Professor  Jevons  states  that  credit  gives 
a  certain  latitude  without  rendering  prices  ultimately 
independent  of  the  metallic  basis. 

(3)  That  paper  is  conditioned  upon  the  existence 
and  presence  of  the  metal. 

(4)  That  the  tendency  of  the  age  is  in  the  direc- 
tion of  a  large  demand  for  metallic  money. 

(5)  That  clearings  have  for  many  years  both  ab- 
solutely and  still  more  relatively  fallen  off  in  England 


148      NATURE,    USES,   AND   VALUE   OF   MONEY 

and  in  this  country.  Never  since  1882  has  the  New 
York  Clearing-House  cleared  in  an  autumn  week  a 
sum  reaching  the  billion  figure,  which  was  a  regular 
thing  that  year. 

(6)  That    it    is  misleading  to  allow   for  alt  the 
paper  in  the  world,  since  after  paper  has  expelled 
metal  in  any  land,   additions  to  its  volume  affect 
world's  prices  no  more. 

(7)  That  quasi-money  and  substitutes  for  money 
aid  in  cheapening  commodities: 

(a)  By  rendering  less  necessary  those  large  stocks 
of  goods,  wholesale  or  retail,  which  were  once  indis- 
pensable. 

(b)  But  this  cheapening  though  in  itself  an  ad- 
vantage is  ever  helping  on  that  increase  in  the  com- 
mand of  money  over  goods. 

(c)  Wares  being  cheaper  are  multiplied,  exchange 
among  them  tending  to  demand  as  much  money  as 
when  fewer  and  dearer,  so  that  their  fall  in  value, 
not  inducing  any  fall  in  money  value,  continually 
upsets  the  par  between  given  amounts  of  them  and 
given  amounts  of  money. 

(8)  The  truck  system  is  dying  out. 

(9)  That  money  is  now  being  mostly  used  instead 
of  barter. 

(10)  That  money  has  supplanted  the  custom  of 
traders  setting   off   their  mutual  accounts  against 
each  other. 

(11)  That  the  wagon-maker  buys  his  wheels  of 
one  man,  his  bodies  of  another,  his  tops  of  another. 

The  shoemaker  buys  the  uppers  ready  made  and 
the  soles  all  cut. 


THE  APPRECIATION   OF   GOLD  149 

The  blacksmith  makes  no  more  nails,  rarely  ever 
points  them,  and  never  thinks  of  forging  a  shoe  or 
a  bolt. 

That  the  man  who  builds  your  house  buys  the 
doors,  the  shutters,  the  sash,  the  window-frames, 
and  the  brackets  from  different  parties  ready  made, 
as  he  does  the  metal  finishings.  The  casings  come 
to  him  all  grooved,  chamfered,  and  ornamented, 
requiring  only  to  be  sawn  and  nailed. 

A  greater  part  of  this  new  exchange  work  has  to 
be  done  by  means  of  money. 

(12)  That   the   progress  of  civilization   in  Asia, 
Africa,  and  South  America  will  call  for  incalculable 
sums  of  money. 

(13)  That  with  progress  in  economic  organization, 
the  sphere  of  credit  becomes  less  extensive  and  the 
proportion  of  cash  payments  to  the  total  volume  of 
business  is  steadily  increasing. 

(i)  The  first  reason  assumes,  without  any  evi- 
dence, that  the  basis  of  credit  is  cash ;  but  it  has  been 
shown  that  credit  does  not  rest  or  depend  on  the 
quantity  of  money,  but  is  independent  of  the  quan- 
tity of  money;  and  while  it  is  one  of  the  principles 
advocated  in  this  work,  that  the  supplies  of  the 
standard  metal  do  exert  an  influence  on  prices,  yet 
it  is  also  shown  that  prices  are  not  influenced  by  the 
quantity  of  money.  As  a  rule,  bank  reserves  are  not 
depleted  until  after  speculation  and  credit  have  ex- 
panded to  such  an  extent  that  the  former  explodes 
and  the  latter  collapses;  confidence  is  destroyed, 
and  it  is  then  that  a  drain  begins  on  the  banks,  and 
they  then  curtail  credit..  Considering  the  great  dis- 


150     NATURE,   USES,   AND  VALUE  OF   MONEY 

proportion  between  the  amount  of  bank  reserves  and 
the  volume  of  credits,  the  influence  of  the  former  on 
the  latter  must  be  very  slight,  if  they  have  any  in- 
fluence at  all.  If  bank  reserves  control  credit,  they 
certainly  give  it  a  most  extraordinarily  wide  latitude 
for  expansion  before  they  exert  any  restraining 
influence. 

(2)  Professor  Jevons  is  correctly  quoted  as  far  as 
it  goes,  but  he  further  states : 

"  It  is  credit  or  the  creation  of  prospective  gold  which 
allows  prices  to  continue  rising  for  a  time  while  gold  is 
decreasing."  '  The  Variation  of  Prices  show  that  on 
an  average  prices  rose  22  \  per  cent,  between  1833  and 
1839,  and  fell  twenty-five  per  cent,  between  this  last  year 
and  1844.  So  far  as  I  have  been  able  to  discover,  this 
great  oscillation  was  entirely  due  to  the  general  expan- 
sion of  trade  and  credit,  and  to  its  subsequent  collapse, 
etc." 

Nothing  here  to  indicate  that  Jevons  held  that 
credit  was  dependent  upon  the  quantity  of  money. 
If  the  quantity  of  money  limits  the  expansion  of 
credit,  why  does  it  not  limit  the  fall  of  credit  ? 

(3)  That  paper  is  conditioned  on  the  existence  of 
the  metal  counts  for  nothing.      By  being  conditioned 
does  not  mean  that  there  must  at  all  times  be  as 
much  metal  money  in  circulation  as  there  are  Gov- 
ernment   and    bank   notes,    negotiable    notes,   bills 
of   exchange,    etc.,    and    the   various    other   credit 
paper  instruments  outstanding;  that  would  simply 
be    impossible.       Besides,    it    makes   no    difference 
whether  this  paper  is  conditioned  on  the  metal  or 


THE  APPRECIATION  OF  GOLD  I$I 

not,  it  does  not  limit  the  credit.  And,  again,  paper 
is  but  the  smallest  part  of  credit,  and  a  very  small 
part  in  proportion  to  the  whole. 

(4)  It  would  be  hard  to  prove  that  the  tendency 
of  the  age  is  in  the  direction  of  a  larger  demand  for 
metallic  money,  and,  I  presume,  for  this  reason,  the 
bimetallist  does  not  attempt  to  prove  it,  but  con- 
tents himself  with  a  simple  assumption  of  the  fact. 

(5)  If  clearings  have  fallen  of!  in  England  and  in 
this  country  for  some  years  past,  it  is  nothing  more 
than  what  was  to  be  expected  from  the  depression 
of  business.      If  the  volume  of  trade  declined,   of 
course  the  volume  of  clearings  would  decline  with 
it.     This  shows  the  unfairness  of  the  bimetallisms 
argument.      He  not  only  uses  the  fact  that  clearings 
may  have  declined  in  volume,  as  an  evidence  of  a 
falling  off  in  the  use  of  credit,  but  he  endeavors  to 
magnify  the  extent  of  this  falling  off  by  assuming 
that  the   volume   of  business  has  increased,    when 
everyone  knows  that  the  business  had  decreased  in 
volume  at  the  time  these  bimetallists  wrote.     Clear- 
ings decline  in  volume,  not  because  the  use  of  credit 
is  falling  off,  but  because  of  the  depression  of  trade 
and  the  consequent  decline  in  the  volume  of  business 
actually  transacted.     It  is  not  a  fair  test  by  which  to 
determine  whether  the  use  of  credit  is  declining,  to 
only  take  up  the  clearing-house,  which  is  only  a  part 
of  the  system  of  credit,  and  then  confine  the  compar- 
ison to  the  clearings  of  one  particular  season  of  one 
particular  year  in  one  particular  city.     If  the  clear- 
ings have  fallen  off  in  the  autumn  months  in  New 
York,  investigation  will  show  that,  where  the  falling 


152      NATURE,    USES,   AND   VALUE   OF   MONEY 

off  was  not  caused  by  the  general  cause  of  depres- 
sion of  trade,  it  was  caused  by  special  causes,  having 
nothing  whatever  to  do  with  credit  generally.  The 
clearings  in  New  York  were  larger  during  the  year 
1890  than  they  were  for  the  year  1880.  The  clear- 
ings for  the  whole  country  in  1884  were  $47,387,408,- 
275.  In  1891  they  amounted  to  $56,803,253,957, 
in  1895  to  $50,872,674,108,  and  in  1896  to  $51,977,- 
799,114.  The  decline  between  1891  and  1895  shows 
the  effects  of  the  panic  of  1893,  and  the  advance  in 
1896  shows  that  business  was  then  beginning  to 
revive.  On  the  whole,  then,  the  clearings  do  not 
indicate  a  falling  off  in  the  use  of  credit,  but  rather 
an  increased  use  of  credit. 

(6)  It  is  misleading  to  allow  for  all  the  paper 
money,  not  only  after  it  has  driven  out  all  the  metal 
money,  but  also  before,  because  paper  money  has 
no  influence  whatever  on  prices  unless  it  is  depre- 
ciated.    If  it  is  kept  up  to  the  standard,  it  cannot 
have  any  effect  on  prices.     All  this  has  been  hereto- 
fore conclusively  shown. 

(7)  That  quasi-money  and  substitutes  for  money 
aid  in  cheapening  commodities  is  certainly  a  novel 
proposition.     The    general    opinion    has  been  that 
credit    stimulated    demand,   and   the  increased  de- 
mand   caused    increased    prices.       How    no    longer 
rendering   necessary    those   large   stocks   of  goods, 
wholesale  and  retail — if  the  fact  were  true,  which  it 
is  not — can  cheapen  commodities  is  not  explained, 
and  is  incapable  of  explanation.     Then  the  bimetal- 
list  says:  Wares  being  cheaper  are  multiplied,  and 
exchange   among  them    tend  to   demand  as  much 


THE  APPRECIATION   OF   GOLD  1 53 

money  as  when  fewer  and  dearer,  so  that  their  fall 
in  value,  not  inducing  any  fall  in  money  value,  con- 
tinually upsets  the  par  between  given  amounts  of 
them  and  given  amounts  of  money.  Here  at  last 
we  have  the  confession  that  it  is  the  cheapening  of 
wares  which  is  continually  upsetting  the  par  between 
given  amounts  of  them  and  given  amounts  of  money. 
This  par  is  price ;  and  so,  after  all,  we  find  that  it  is 
the  wares,  and  not  the  money,  which  are  the  cause 
of  the  fall  of  prices.  Just  one  observation  more 
before  dropping  this  /th  reason.  This  reason  has 
nothing  to  do  with  the  question,  for,  even  if  credit 
does  have  the  effect  of  lowering  prices,  it  does  not 
follow  that  credit  has  been,  or  will  be,  any  the  less 
used ;  and  if  credit  has  any  such  effect,  then  gold, 
or  money,  cannot  be  the  cause  of  the  fall  in  prices. 

(8  and  9)  The  truck  system  and  barter  have  been 
dying  out  these  many  years.  Years  ago  both  of 
these  systems,  as  here  understood,  died  out  to  such 
an  extent  that  any  subsequent  decline  in  their  use 
is  wholly  without  any  influence  or  effect. 

(10)  I  by  no  means  admit  that  money  has  sup- 
planted   the    custom    of    traders    setting   off   their 
mutual  accounts  against  each  other,  but  even  if  it 
were  so,  the  setting  off  of  the  accounts  is  simply 
transferred   from   the  book    settlement  to  a  set-off 
through  the  banks.     All  traders  keep  bank  accounts, 
and  pay  and  receive  payments  in  checks. 

(11)  Just  how  the  facts,  that  a  shoemaker  buys 
his  uppers,  the  wagon-maker  his  wheels,  the  black- 
smith his  nails,  and  a  building  contractor  his  doors, 
shutters,  etc.,   create  a  greater  use  or  demand  for 


154     NATURE,   USES,   AND  VALUE   OF  MONEY 

money  is  not  made  apparent.  Before  the  division 
of  this  work  these  traders  purchased  from  just  as 
many  persons;  the  division  creates  no  increase  in 
the  number  of  transactions — the  shoemaker  bought 
his  leather,  the  wagon-maker  the  lumber,  the  black- 
smith his  iron,  and  the  building  contractor  the  lum- 
ber. Besides,  even  if  the  number  of  transactions 
were  increased,  it  would  make  no  difference  in  the 
amount  of  actual  money  required,  for  every  one  of 
these  traders  and  manufacturers  keeps  his  bank  ac- 
count, and  pays  his  bills  by  checks  on  his  bank. 

(12)  As  civilization  progresses  in  Asia,   Africa, 
and    South   America  the  use  of  credits  and  other 
economies  in  the  use  of  money  will  progress  with  it, 
and  so  will  money. 

(13)  This  reason  is  practically  a  repetition  of  the 
former  one,  that  the  tendency  is  to  use  more  metallic 
money.      How,  why,  or  when  the  sphere  of  credit 
becomes  less  extensive  with  progress  in  economic 
organization  is  not  explained  ;  and  it  is  not  the  fact, 
nor  is  it  the  fact  that  the  proportion  of  cash  pay- 
ments to  the  total  volume   of  trade  is  steadily  in- 
creasing.    Nor  does  any  such   a  conclusion  follow 
from  the  fact  that  those  who  are  best  able  to  get 
credit  use  it  least. 

There  is  considerable  confusion  in  the  foregoing 
reasons  in  the  use  of  the  word  "  credit."  The 
word,  credit,  like  many  other  words,  is  used  in 
several  senses.  One  of  these  senses  is  the  trust  and 
confidence  which  one  man  reposes  in  another  man, 
and  the  bestowal  of  this  trust  and  confidence  gives 
credit  to  the  recipient.  It  is  this  trust  and  confi- 


THE   APPRECIATION   OF   GOLD  155 

dence  which  one  man  reposes  in  another  which  in- 
duces the  former  to  part  with  his  property — sell  or 
loan  it  to  the  latter  on  the  promise  by  the  latter  to 
pay  for,  or  to  return  it,  at  some  future  time;  and 
it  is  the  purchaser's  or  borrower's  credit  which  en- 
ables him  to  acquire  property,  or  the  use  of  property, 
without  immediate  payment.  This  form  of  credit 
is  purchasing  power,  and  we  have  seen  how  tremen- 
dous is  its  effect  upon  prices;  but  it  is  not  a  means 
of  payment,  and,  consequently,  does  not  lessen  the 
use  of  money,  for  though,  originally,  goods  were 
purchased  on  credit,  they  may  have  to  be  paid  for 
eventually  in  money. 

Another  sense  in  which  the  word  "  credit  "  is 
used  is  as  the  name  of  a  system  for  the  payment  of 
indebtedness  or  other  liabilities,  such  as  mutual  ac- 
counts being  set  off  against  each  other,  payments 
made  through  banks,  etc.,  without  the  use  of  money 
at  all.  This  form  of  credit  implies  the  former,  but 
it  has  no  effect  on  prices,  unless  it  be  through  the 
quantity  theory  of  money — that  is,  by  decreasing 
the  demand  for  money,  less  of  it  is  required  and  it 
will  fall  in  its  value,  and  prices  will  rise. 

The  first,  second,  sixth,  seventh,  and  thirteenth 
reasons  above  given  in  support  of  the  claim  that  the 
use  of  credit  is  lessening,  refer  to  the  first  sense  in 
which  the  word  "  credit  "  is  applied,  and  have 
nothing  whatever  to  do  with  the  quantity  of  money 
which  may  be  required. 

The  remaining  reasons  all  relate  to  the  quantity 
theory  of  money;  the  argument  is  that  on  account 
of  the  falling  off  in  the  use  of  credit  as  a  means  of 


156      NATURE,    USES,   AND   VALUE   OF   MONEY 

payment,  more  money  will  be  required  for  use  ;  that 
the  supply  of  money  will  not  keep  up  with  this  de- 
mand, and  hence  that  prices  must  fall.  But  we 
have  seen  that  the  quantity  theory  is  not  correct, 
and  that  it  has  no  influence  whatever  on  prices,  and 
therefore  all  this  long  and  painful  enumeration  of 
the  different  reasons  to  prove  that  the  use  of  credit 
is  declining  is  in  vain,  and  goes  for  naught.  They 
do  not  meet  the  issue. 

In  considering  this  question  of  credits,  the  bi- 
metallist,  for  some  unaccountable  reason,  has  wholly 
overlooked  banks.  Now,  of  all  the  economies  for 
the  use  of  money  and  instruments  of  credit,  a  bank 
is,  by  all  odds,  the  most  effective  and  far  reaching. 
Everybody  knows  this,  and  everybody  knows,  too, 
that  banks  are  constantly  increasing,  not  only  in  the 
older  communities  but  in  new  settlements,  and  that 
the  range  of  their  depositors  is  constantly  extending 
and  the  number  increasing.  Farmers  and  others 
who,  not  so  many  years  ago,  refused  to  have  any 
dealings  with  a  bank,  now  keep  accounts  with  one 
and  do  their  business  and  make  their  payments 
through  it ;  in  fact,  they  are  often  the  principal  sup- 
port of  the  bank  in  their  community.  In  the  face 
of  these  well-known  facts,  it  is  idle  to  talk  of  credit 
being  on  the  decline. 

But  all  this  talk  and  long  discussion  about  credit 
is  wide  of  the  mark,  and  has  nothing  whatever  to  do 
with  the  main  question.  The  question  is,  has  gold 
appreciated  in  value  on  account  of  causes  appertain- 
ing to  itself  ?  Credit  has  no  bearing  on  this  ques- 
tion ;  it  neither  increases  nor  decreases  the  supply 


THE   APPRECIATION   OF   GOLD  157 

of  gold ;  and  if  the  increase  or  decrease  of  credit 
affects  the  monetary  demand  for  gold,  that  can 
make  no  difference  in  the  value  or  the  purchasing 
power  of  gold,  because,  as  we  have  shown,  the 
monetary  demand  for  gold  or  the  use  of  gold  as 
money,  does  not  increase  its  purchasing  power,  and 
that,  so  far  as  this  purchasing  power  is  concerned,  it 
is  immaterial  whether  much  or  little  gold  is  used,  or 
is  required  to  be  used,  as  money.  The  production 
of  gold  since  1873,  if  it  has  done  no  more,  has,  at 
least,  certainly,  been  sufficient  to  keep  the  value  of 
gold  stationary,  and  to  prevent  it  from  appreciating 
in  value. 

Mr.  Andrews  puts  a  case,  that,  if  gold  has  forty  or 
fifty  per  cent,  more  purchasing  power  but  its  pro- 
duction requires  no  more  intrinsic  effort  than  before, 
while  the  mercantile  cost  of  the  labor  and  capital  is 
twenty-five  per  cent,  less  than  before,  the  inevitable 
result  would  be  a  vast  increase  of  production  ;  where- 
as the  production  has  declined,  therefore,  the  effort 
which  must  be  put  forth  to  get  gold  is  greater  than 
formerly.  What  is  here  meant  by  "  effort  "  but 
cost? — he  says  metaphysical  cost ;  but  is  not  effort  in 
this  connection  cost — real  cost — which  some  econo- 
mists call  costs,  others  sacrifice?  Now,  if  the  in- 
creased effort  is  increased  cost,  then  there  could  not 
be  a  reduction  of  the  cost  of  labor  and  capital. 
What  is  meant  by  metaphysical  cost  ?  If  it  means 
any  cost  outside  of  actual  cost,  then  it  don't  count; 
actual  cost  is  what  is  effective.  If  effort  is  meta- 
physical cost,  then,  the  greater  effort  to  get  gold  is 
only  a  metaphysically  greater  cost,  and  not  a  real 


158      NATURE,   USES,  AND  VALUE   OF  MONEY 

cost,  so  that  the  real  actual  cost  of  production  is  no 
greater  than  before.  However,  it  is  immaterial  just 
what  Mr.  Andrews  means,  the  fact  is,  the  produc- 
tion of  gold,  as  shown  above,  has  vastly  increased— 
greater  than  ever  before  in  the  history  of  the  world. 

§  6.  The  proposition  next  to  be  considered  is, 
that  the  demonetization  of  silver  by  Germany  in 
1873,  followed  by  the  action  of  the  Latin  Union 
restricting  the  coinage  of  silver  on  private  account, 
the  demonetization  of  silver  by  the  United  States 
in  1873,  and  its  demand  for  gold  for  the  purposes  of 
resumption  of  specie  payment  in  1879,  nave  caused 
the  fall  of  gold  prices. 

This  need  not  detain  us  very  long  at  present.  The 
argument  is,  that  the  demonetization  of  silver  by 
Germany  withdrew  a  large  amount  of  silver  from 
circulation,  causing  an  increased  demand  for  gold 
for  use  as  money;  that  the  gold  required  by  the 
United  States  for  resumption  also  increased  the 
monetary  demand  for  gold  ;  that  all  these  de- 
mands, together  with  all  the  other  monetary 
demands  for  gold,  caused  an  appreciation  of  the 
value  of  gold,  and  hence  that  gold  prices  of  com- 
modities fell.  It  now  remains  only  necessary  to 
recall  what  has  already  been  proven,  to  wit :  That 
the  quantity  of  gold  required  by  Germany  to  re- 
place the  displaced  silver  was  too  small  to  have  any 
such  effect  as  falling  prices;  that  the  States  of  the 
Latin  Union  did  not  displace  any  silver,  and  hence 
required  no  additional  gold ;  that  the  gold  accumu- 
lated by  the  United  States  for  resumption  in  1879 
was  too  small  to  create  any  fall  in  prices ;  was  not, 


THE  APPRECIATION  OF  GOLD  159 

in  fact,  followed  by  any  fall  in  prices;  and  that, 
finally  and  conclusively,  the  monetary  demand  for 
gold  is  not  such  a  demand  as  will  increase  its  pur- 
chasing power,  and,  consequently,  that  any  addi- 
tional demand  for  that  purpose  will  not  increase  the 
purchasing  power  of  gold.  From  which  it  follows 
that  there  has  been  no  appreciation  of  gold  on  ac- 
count of  causes  affecting  gold  itself. 

§  7.  The  next  proposition  is  that  under  bimetal- 
lism the  demand  and  supply  of  gold  and  silver  in 
fixing  the  purchasing  power  of  given  quantities  of 
them,  overwhelmingly  out-influence  the  commodity 
supply  and  demand,  and  will  secure  all  necessary 
fixity  of  general  prices. 

It  is  proposed  to  only  make  one  or  two  observa- 
tions on  this  proposition  at  present. 

How  is  the  demand  and  supply  of  gold  and  silver 
to  fix  the  purchasing  power  of  given  quantities  of 
them  ?  Bimetallism  must  be  created  by  law,  and 
the  ratio  between  gold  and  silver — that  is,  the  given 
amounts  of  them  above  spoken  of — must  also  be 
fixed  by  law;  therefore,  under  this  proposition  the 
law  can  and  will  fix  the  purchasing  power  of  money. 
But  the  law  never  can,  and  never  will,  be  able  to  do 
that. 

How  the  demand  and  supply  of  gold  and  silver 
are  to  out-influence  the  commodity  supply  and  de- 
mand any  more  than  the  demand  and  supply  of  one 
of  those  metals  would  is  not  apparent,  nor  is  it  ex- 
plained. The  bimetallist  says  that  the  effect  of  the 
demand  and  supply  of  gold  and  silver  out-influences 
the  effect  of  the  demand  and  supply  of  commodities. 


160      NATURE,    USES,   AND   VALUE   OF   MONEY 

How  ?  Why,  by  fixing  the  purchasing  power  of 
given  quantities  of  gold  and  silver,  and  the  result  is 
a  fixity  of  general  prices.  Establish  a  legal  ratio 
between  gold  and  silver,  and  all  is  accomplished.  If 
the  demand  and  supply  of  gold  and  silver  will  fix 
the  purchasing  power  of  them,  why  will  not  the  de- 
mand and  supply  of  either  metal  now  do  the  same  ? 
The  value  of  each  depends  upon  its  own  supply  and 
demand  in  any  event,  under  bimetallism  or  not. 
How  can  fixing  a  ratio  by  law  between  gold  and 
silver  aid  gold  or  silver,  or  both  together,  or  the  de- 
mand and  supply  of  them,  in  overcoming  the  effects 
of  a  change  in  prices  caused  by  changes  in  the  de- 
mand and  supply  of  commodities  ?  It  simply  can- 
not do  it,  and  never  did  do  it,  under  bimetallism. 
Must  not  the  price  of  each  commodity  be  subject  to 
the  influence  of  its  own  conditions  of  supply  and 
demand  ?  The  purchasing  power  of  one  commodity 
— gold  or  silver — or  of  both,  cannot  relieve  each  of 
all  other  commodities  from  this  subjection  to  its  own 
conditions  of  supply  and  demand. 

§  8.  We  have  spent  a  great  deal  of  time  and 
space  on  this  question,  and  have  not  yet  discovered 
the  bimetallist's  real  complaint.  But  the  trouble  is 
not  with  us,  because  we  were  bound  in  fairness  to 
go  over  the  whole  of  the  bimetallist's  argument,  and 
were  also  compelled  to  do  so  for  the  purpose  of 
clearing  the  case  of  immaterial  matter.  The  trouble 
is  that  the  bimetallist  does  not  say  just  what  he 
means. 

When  he  complains  about  the  appreciation  of  gold, 
his  real  complaint  is  that  gold  has  not  depreciated. 


THE   APPRECIATION   OF   GOLD  l6l 

What  he  means  is,  that  the  demand  and  supply 
of  the  precious  metals  should,  at  all  times  and  in  all 
cases,  correspond  with  the  demand  and  supply  of 
commodities;  that  is  to  say,  if,  by  reason  of  an  in- 
crease in  the  supply,  or  of  a  decrease  in  the  cost  of 
production,  commodity  has  a  tendency  or  an  incli- 
nation to  fall  in  price,  the  supply  of  the  precious 
metal  must  also  increase  correspondingly  and  depre- 
ciate the  purchasing  power  of  the  metal  to  the  same 
extent  as  the  depreciation  of  the  value  of  commo- 
dity; and  if  commodity,  on  account  of  a  decrease 
of  supply,  tends  to  rise  in  price,  then  either  the 
demand  for  gold  must  increase  or  the  supply  of  gold 
must  forthwith  be  diminished,  so  that  gold  will  ap- 
preciate sufficiently  to  prevent  the  rise  in  the  price 
of  the  commodity,  in  order  that  at  all  times  prices 
will  remain  steadily  fixed  and  stationary,  no  rise  and 
no  fall  from  any  cause.  This  is  what  the  bimetallist 
means  when  he  speaks  of  having  the  value  of  money 
"  persistently  the  same  ";  of  the  fact  of  the  value 
of  money  remaining  fixed  being  its  vice;  and  when 
he  says  that  it  was  not  necessary  that  general  prices 
should  fall  because  there  was  an  increase  in  the 
supply  of  commodity  and  a  lessened  cost  of  produc- 
tion; that  the  very  fact  that  there  is  a  change  in 
prices  is  proof  that  the  money  system  is  imperfect; 
and  of  the  demand  of  gold  and  silver  overwhelmingly 
out-influencing  the  demand  and  supply  of  commodi- 
ties and  thus  securing  a  fixity  of  general  prices. 

This,  then,  is  the  bimetallisms  Honest  Dollar:  one 
whose  metal  will  always  rise  or  fall  in  its  purchasing 
power  in  order  that  it  will  at  all  times  overcome  all 


162      NATURE,   USES,   AND  VALUE   OF   MONEY 

the  effects  of  an  increased  demand  or  supply  of 
commodity,  the  lessened  cost  of  production,  compe- 
tition, and  the  expansion  and  contraction  of  credit ; 
and  hold  prices  fixed  and  immovable,  so  that  neither 
demand  nor  supply,  neither  an  increase  nor  a  de- 
crease in  the  cost  of  production,  neither  monopoly 
nor  competition,  neither  the  expansion  nor  the  con- 
traction of  credit  will  have  any  effect  whatever  on 
prices ;  for  any  tendency  to  such  change  in  price  will 
immeditaely  be  met  and  counteracted  by  a  rise  or 
fall  of  the  purchasing  power  of  this  honest  dollar, 
which  will  hold  prices  everlastingly  and  eternally  the 
same.  With  this  honest  dollar  nothing  can  make 
any  difference  on  prices, — bountiful  harvests,  or 
famines,  wars,  and  pestilence,  plenty  or  scarcity, — 
none  of  these,  nor  anything  else,  can  make  any 
change  in  prices.  Man  may  surfer,  and  may  even 
die  for  want  of  the  necessaries  of  life,  or  he  may  be 
crushed  and  smothered  by  the  superfluous  mass  of 
commodities  heaped  upon  him,  and  for  which  he 
has  no  use,  yet  he  will  have  the  satisfaction  of 
knowing  that  prices  cannot  change.  Everything  on 
the  dead  level,  no  competition,  no  struggle  for  busi- 
ness, no  speculation,  no  effort  to  improve  the  use- 
fulness or  the  beauty  of  a  commodity,  for  the  price 
would  be  all  the  same;  there  would  be  no  strikes, 
for  what  would  be  the  use  in  striking  for  higher 
wages?  prices  and  wages  would  be  all  the  same;  no 
financial  storms  of  any  kind,  but  at  all  times  a  lovely 
calm  pervading  the  world,  and  peace  and  plenty, 
happiness  and  contentment  reigning  supreme.  . 
It  is  possible  that  man,  after  having  attained  this 


THE  APPRECIATION  OF  GOLD  163 

exalted   state   of   perfection,   will   be  happy,   very 
happy,  but  he  will  be  dead. 

But  of  all  claims  that  have  been  made,  the  one 
that  bimetallism  is  the  system  which  will  produce 
this  honest  dollar  and  maintain  the  fixity  of  general 
prices  is  the  most  singular.  Up  to  1873  the  world 
was  practically  bimetallic,  and  yet  they  continually 
had  falls  and  rises  in  prices.  From  1809  to  1850 
there  was  a  tremendous  fall  in  prices,  and  the  world 
was  then  bimetallic;  there  was  a  fall  in  prices  after 
1857,  and  after  1866,  and  during  all  this  time  the 
world  was  bimetallic.  Mr.  Andrews  himself  admits 
it,  for,  as  above  quoted,  he  says: 

"  In  a  word,  vexations  in  kind  entirely  like  those 
which  rising  and  falling  prices  have  been  occasioning  in 
our  day,  have  dogged  men  ever  since  money  was  invented. 
.  .  .  Is  this  plague  necessary  ?  Must  it  be  perpetual  ? 
Is  the  commercial  world,  the  entire  money-using  world, 
to  be  forever  tormented  with  this  accursed  up  and  down 
in  the  purchasing  power  of  money  ?  " 

No  reason  has  been  shown  why  the  effect  of  bi- 
metallism would  not  be  the  same  in  the  future  as  it 
was  in  the  past.  As  it  was  in  the  past  so  it  would 
be  in  the  future  if  again  introduced,  and  this,  too,  is 
admitted  by  President  Andrews.  On  page  61  he 
says:  "  That  many  manufactured  articles  have  long 
been  decreasing  in  intrinsic  cost,  is  a  great  blessing, 
and  articles  of  this  class  would  doubtless  have  gone 
down  more  or  less  under  an  ideal  system  of  money." 

What,  then,  is  the  object  of  this  persistent  and 
furious  attack  upon  gold  and  the  present  monetary 


164      NATURE,    USES,   AND   VALUE   OF   MONEY 

system,  charging  them  with  being  the  cause  of  fall- 
ing prices  and  of  all  the  alleged  evils  flowing  there- 
from, when,  confessedly,  the  same  changes  in  prices 
and  the  same  evils  have  heretofore  taken  place,  and 
will  hereafter  take  place,  under  a  bimetallic  or  ideal 
monetary  system  ?  I  will  permit  the  bimetallists  to 
answer  this  question.  But,  whatever  may  have 
been  the  object,  there  can  be  no  doubt  that  it  has 
had  the  effect  of  creating  in  the  minds  of  a  very 
great  portion  of  the  people  the  false  impression  and 
the  belief  that  gold  and  the  present  monetary  system 
have  been  the  cause  of  the  falling  prices  and  of  the 
whole  train  of  evils,  real  or  imaginary  (and  magnified 
to  the  highest  degree),  which  are  claimed  to  be  the 
consequences  of  these  falling  prices,  and  that  these 
falling  prices  and  evils  would  not  have  occurred 
under  a  bimetallic  system. 

§  9.  One  word  more  before  closing  this  already 
too  lengthy  chapter.  It  is  a  word  of  caution  to  the 
reader  not  to  permit  himself  to  be  too  greatly  influ- 
enced by  the  statistics  and  index  numbers  of  prices. 
These  statements  are  compiled  from  the  prices  of 
but  a  few  out  of  the  mass  of  commodities;  indeed, 
from  but  a  small  proportion  of  all  of  the  commodi- 
ties, and  hence  do  not  show,  and  do  not  pretend  to 
show,  the  prices  of  all,  or  even  of  any  considerable 
proportion,  of  the  commodities;  therefore  these 
statements  do  not  show  whether  general  prices  have 
either  fallen  or  risen.  The  allegation  of  a  general 
fall  of  prices  is  nothing  more  than  an  inference  drawn 
from  these  statements  or  tables  of  prices,  which,  as 
Dr.  Soetbeer  says:  "  can  be  taken  and  should  be 


THE  APPRECIATION   OF   GOLD  165 

taken  only  as  approximate  estimates,  to  be  accepted 
with  every  qualification  "  ;  and  as  Mr.  Sauerbeck  is 
quoted  by  Mr.  Pierson  in  the  British  Economic  Jour- 
nal for  September,  1895,  as  saying:  "  such  calcula- 
tions as  his  will  never  give  more  than  '  a  rough  '  idea 
of  the  real  cause  of  prices."  '  They  cannot  com- 
prise everything,  and  it  was  never  asserted  by  myself 
that  the  appreciation  of  gold  was  exactly  in  the 
same  proportion."  In  none  of  these  statements  is 
real  estate  included,  and  one  would  naturally  sup- 
pose that  its  prices  would  be  given,  for  it,  certainly, 
is  one  of  the  most  important  things. 

Another  thing,  the  reader  is  cautioned  not  to 
place  too  much  reliance  upon  the  assumption  and 
assertion  by  some  that  prices  have  fallen.  While 
the  bimetallist  insists  that  general  prices  have  fallen, 
another  class  of  authors  of  at  least  equal  reliability 
and  reputation,  while  admitting  that  some  articles 
have  fallen  in  price,  yet  insist  that  others  have  not, 
and  that  there  has  been  no  general  fall  of  prices,  and 
they  back  up  their  opinion  by  plenty  of  statistics. 

There  is,  therefore,  a  great  difference  of  opinion 
on  the  question,  and  it  can  by  no  means  be  regarded 
as  settled.  Cernuschi,  the  Father  of  Bimetallism,  in 
his  work  entitled  The  Bimetallic  Par  (1887),  PP-  33> 
34,  says : 

"  If  the  depression  of  trade  had  been  caused  by  a 
monetary  contraction,  all  prices  in  general  would  have 
been  affected  as  much  or  nearly  as  much  as  the  prices  of 
articles  of  Asiatic  origin  and  of  the  same  articles  pro- 
duced in  Europe. 

"  But  by  no  means  have  all  prices  fallen.     Ask  heads 


l66     NATURE,    USES,   AND   VALUE   OF   MONEY 

of  families.  They  will  reply  that  tea  and  bread  are 
cheap,  but  that  other  articles  of  consumption  are  still 
at  the  old  prices,  and  that  several  have  even  risen. 
Butcher's  meat,  fish,  cheese,  butter,  beer,  spirits,  have 
not  fallen. 

"  When  the  scale  of  prices  undergoes  a  change  owing 
to  a  change  in  the  volume  of  the  existing  monetary  mass, 
the  phenomenon  is  general,  visible,  and  tangible  for  all. 
The  maintenance  of  families  required  a  larger  quantity 
of  money  than  before,  after  the  volume  of  the  existing 
mass  was  sensibly  augmented  by  the  addition  of  the  new 
gold  from  California  and  Australia.  Everybody  ac- 
knowledged it,  for  everybody  perceived  it.  But  nobody 
perceives  that  of  late  years  the  maintenance  of  families 
has  required  less  money  than  prior  to  1873." 


CHAPTER  VIII 

WHY   THE   COMMODITY   USED   AS   MONEY   MUST 
HAVE   EXCHANGEABLE   VALUE 

§  i.  MORE  people  than  wild  and  blind  enthusiasts 
have,  at  one  time  or  another,  advocated  the  use  of  a 
money  which  has,  of  and  in  itself,  no  exchangeable 
value,  but  which  depends  wholly  upon  the  mandate 
of  government  for  its  value  in  exchange ;  in  other 
words,  what  is  now  known  as  fiat  money;  or  have 
entertained  and  fostered  notions  and  theories  which, 
if  carried  out  to  their  legitimate  conclusion,  would 
justify  a  belief  in  the  entire  practicability  of  such 
money. 

Defining  a  precious  metal  when  used  as  money  as 
a  mere  sign,  or  ticket,  or  order,  or  bill,  entitling  the 
holder  to  a  certain  quantity  of  goods,  is  more  than 
likely  to  convey  the  idea  that  money  need  not  be  a 
thing  of  value,  but  any  sign  or  ticket  will  answer 
the  same  purpose.  The  impression  left  upon  the 
mind  by  such  a  definition  is,  that  money  is  some- 
thing like  a  baggage  check,  or  a  ticket  for  some 
theatrical  performance  and  the  like.  The  check 
and  the  ticket  of  themselves  have  no  value,  or  com- 
paratively none,  but  they  are  a  sign — that  is,  they 
are  the  evidence  of  the  right  to  receive  a  certain 
piece  of  baggage,  or  to  see  a  certain  performance ; 

167 


l68       NATURE,  USES,  AND   VALUE    OF   MONEY 

and  defining  money  as  a  mere  sign  or  ticket,  etc.,  is 
more  than  likely  to  lead  the  mind  to  the  conclusion 
that,  since  money  is  a  mere  sign  or  ticket  showing 
that  the  holder  is  entitled  to  certain  goods,  it  is  not 
necessary  that  this  mere  sign  or  ticket  or  this  evi- 
dence should  be  made  out  of  any  valuable  material, 
and  that  brass  and  paper,  or  tin,  or  wood,  or  leather, 
or  any  other  very  cheap  commodity  would  answer 
the  purpose  just  as  well  as  gold  or  silver. 

Plutarch,  speaking  of  Lycurgus  of  Sparta,  says: 

"  He  commanded  that  all  gold  and  silver  coin  should 
be  called  in,  and  that  only  a  sort  of  money  made  of  iron 
should  be  current,  a  great  weight  and  quantity  of  which 
was  very  little  worth ;  so  that  to  lay  up  twenty  or  thirty 
pounds  there  was  required  a  pretty  large  closet,  and,  to 
remove  it,  nothing  less  than  a  yoke  of  oxen.  With  the 
diffusion  of  this  money,  at  once  a  number  of  vices  were 
banished  from  Lacedaemon;  for  who  w@uld  rob  another 
of  such  a  coin  ?  Who  would  unjustly  detain  or  take  by 
force,  or  accept  as  a  bribe,  a  thing  which  it  was  not  easy 
to  hide,  nor  a  credit  to  have,  nor  indeed  of  any  use  to 
cut  in  pieces  ?  For  when  it  was  just  red  hot,  they 
quenched  it  in  vinegar,  and  by  that  means  spoilt  it,  and 
made  it  almost  incapable  of  being  worked." 

The  object  of  Lycurgus  in  using  the  spoilt  iron  as 
money  was  to  crush  out  all  foreign  and  domestic 
trade,  and  he  succeeded.  Plutarch  quaintly  says: 

"  So  there  was  now  no  more  means  of  purchasing 
foreign  goods  and  small  wares;  merchants  sent  no  ship- 
loads into  Laconian  ports;  no  rhetoric-master,  no  itiner- 
ant fortune-teller  no  harlot-monger,  or  gold  or  silversmith, 


EXCHANGEABLE   VALUE  169 

engraver,  or  jeweler,  set  foot  in  a  country  which  had  no 
money." 

All  of  which  goes  to  show  that  the  ancients  had 
a  more  correct  understanding  of  money  and  of  the 
necessity  of  its  being  a  thing  of  value  than  many 
persons  of  modern  times  have.  When  the  ancients 
wished  to  destroy  the  usefulness  of  money  and  to 
abolish  its  use,  they  knew  just  how  to  do  it,  and 
they  did  it  by  simply  making  money  out  of  a  thing 
which  had  no  value. 

The  following  extracts  from  the  writings  of  Ri- 
cardo  will  show  the  doctrines  taught  by  him  on  this 
subject.  The  quotations  are  taken  from  the  works 
of  Ricardo  edited  by  McCulloch ;  the  pages  given 
are  the  pages  in  the  Works. 

"  While  the  State  coins  money  and  charges  no  seignor- 
age,  money  will  be  of  the  same  value  as  any  other  piece 
of  the  same  metal  of  the  equal  weight  and  fineness ;  but  if 
the  State  charges  a  seignorage  for  coinage,  the  coined 
piece  of  money  will  generally  exceed  the  value  of  the 
uncoined  piece  of  metal  by  the  whole  seignorage 
charged,  because  it  will  require  a  greater  quantity  of 
labor,  or,  which  is  the  same  thing,  the  value  of  the 
produce  of  a  greater  quantity  of  labor,  to  procure  it. 

"  While  the  State  alone  coins,  there  can  be  no  limit  to 
this  charge  of  seignorage;  for  by  limiting  the  quantity 
of  coin,  it  can  be  raised  to  any  conceivable  value. 

"  It  is  on  this  principle  that  paper  money  circulates: 
the  whole  charge  for  paper  money  may  be  considered  as 
seignorage.  Though  it  has  no  intrinsic  value,  yet  by 
limiting  its  quantity,  its  value  in  exchange  is  as  great  as 
an  equal  denomination  of  coin,  or  of  bullion  in  that 


I/O       NATURE,  USES,  AND   VALUE   OF   MONEY 

coin.  On  the  same  principle,  too,  namely,  by  a  limitation 
of  its  quantity,  a  debased  coin  would  circulate  at  the 
value  it  should  bear,  if  it  were  of  the  legal  weight  and 
fineness,  and  not  at  the  value  of  the  quantity  of  metal 
which  it  actually  contained.  In  the  history  of  the  British 
coinage,  we  find,  accordingly,  that  the  currency  was 
never  depreciated  in  the  same  proportion  that  it  was  de- 
based; the  reason  of  which  was,  that  it  never  was 
increased  in  quantity  in  proportion  to  its  diminished 
intrinsic  value." 

"  On  these  principles,  it  will  be  seen  that  it  is  not 
necessary  that  paper  money  should  be  payable  in  specie 
to  secure  its  value;  it  is  only  necessary  that  its  quantity 
should  be  regulated  according  to  the  value  of  the  metal 
which  is  declared  to  be  the  standard."  1 

And  again  he  says: 

"  The  limits,  beyond  which  a  seignorage  cannot  be  ad- 
vantageously extended,  are  the  actual  expenses  incurred 
by  the  manufacturing  of  bullion  into  coin.  If  a  seignor- 
age exceed  these  expenses,  an  advantage  will  accrue  to 
false  coiners  by  imitating  the  coins,  although  they  should 
actually  make  them  of  their  legal  weight  and  standard; 
but  even  in  this  case,  as  the  addition  of  money  to  the 
circulation  beyond  the  regular  demands  of  commerce 
will  diminish  the  value  of  that  money,  the  trade  of  false 
coiners  must  cease  when  the  value  of  the  coin  does  not 
exceed  the  value  of  bullion  more  than  the  actual  expenses 
of  fabrication.  If  the  public  could  be  secured  from  such 
illegal  additions  to  the  circulating  medium,  there  could 
be  no  seignorage  so  high  which  a  government  might  not 
advantageously  exact;  as  the  coined  money  would,  in 
1  Essay  on  Currency  and  Banks,  pp.  213,  214. 


EXCHANGEABLE  VALUE  I /I 

the  same  degree,  exceed  the  value  of  bullion.  If  the 
seignorage  amounted  to  ten  per  cent.,  bullion  would  nec- 
essarily be  ten  per  cent,  under  the  mint  price;  and  if  it 
were  fifty  per  cent.,  that  also  would  the  value  of  coin  ex- 
ceed the  value  of  bullion.  It  appears,  then,  that  al- 
though a  given  weight  of  bullion  can  never  exceed  in  value 
a  given  weight  of  coin,  a  given  weight  of  coin  may  exceed 
in  value  a  given  weight  of  bullion  by  the  whole  expense 
of  seignorage,  however  great  that  seignorage  may  be, 
provided  that  there  was  effectual  security  against  the  in- 
crease of  money  through  the  imitation  of  the  coins  by 
illegal  means.  And  it  appears  also,  that  if  no  such 
security  could  be  given,  the  trade  of  the  false  coiner 
would  cease  as  soon  as  he  had  added  so  much  to  the 
amount  of  the  coin  as  to  diminish  its  value  on  a  com- 
parison with  bullion  to  the  actual  expenses  incurred. 
That  these  principles  are  correct  may  be  proved  from 
the  consideration  of  the  circumstances  which  give  value 
to  a  bank  note.  A  bank  note  is  of  no  more  intrinsic 
value  thai*  the  piece  of  paper  on  which  it  is  made.  It 
may  be  considered  as  a  piece  of  money  on  which  the 
seignorage  is  enormous,  amounting  to  all  its  value;  yet 
if  the  public  is  sufficiently  protected  against  the  too 
great  increase  of  such  notes,  either  by  the  indiscretion  of 
the  issuers,  or  by  the  practices  of  false  coiners  or  forgers, 
they  must,  in  the  ordinary  operations  of  trade,  retain 
their  value. 

"  Whilst  such  money  is  kept  within  certain  limits,  any 
value  may  be  given  to  it  as  currency;  £$  i*js.  io\d.  may 
be  worth  an  ounce  of  gold  bullion,  the  value  at  which  it 
was  originaly  issued,  or  it  may  be  reduced  to  the  value 
of  half  an  ounce;  and  if  the  bank  which  issued  had  the 
exclusive  privilege  of  procuring  money  to  be  coined  at 
the  mint,  £$.  i>js.  ioj^.  of  their  notes  might  be  rendered 


1/2       NATURE,  USES,  AND   VALUE   OF   MONEY 

of  equal  value  to  i,  2,  3,  or  any  number  of  ounces  of 
gold  bullion. 

"  From  these  principles  it  results  that  there  can  exist 
no  depreciation  of  money  but  from  excess.  However 
debased  a  coinage  may  become,  it  will  preserve  its  mint 
value;  that  is  to  say,  it  will  pass  in  circulation  for  the 
intrinsic  value  of  the  bullion  which  it  ought  to  contain, 
provided  it  be  not  in  too  great  abundance."  l 

From  which  it  appears  that  the  quantity  of  gold 
or  silver  in  the  coin  may  be  reduced  to  any  extent: 
ten,  fifty,  or  even  ninety-nine  per  cent.,  either  by  a 
charge  for  seignorage  or  other  form  of  raising  the 
coins  by  the  government,  or  by  clipping,  sweating, 
or  any  other  of  the  ways  by  which  coins  are  debased ; 
and  still  the  coin  will  pass  in  circulation  for  the  in- 
trinsic value  of  the  bullion  it  ought  to  contain,  pro- 
vided the  money  be  not  in  too  great  abundance; 
and  that  a  bank  note,  if  not  issued  in  excess,  and 
the  coinage  of  gold  and  silver  were  limited  or  pre- 
vented, might  be  rendered  worth  any  quantity  of 
bullion — that  is  to  say,  an  ounce  of  gold  is  worth  in 
our  money  about  $18.95,  if  the  amount  of  bank 
notes  were  limited,  and  if  the  coinage  of  gold  and 
silver  were  limited  or  stopped  altogether,  $18.95  in 
bank  notes  might  purchase  one,  two,  three,  four,  or 
any  number  of  ounces  of  gold  bullion. 

Money,  then,  although  it  be  of  little  or  no  ex- 
changeable value  in  and  of  itself  will,  in  circulation, 
be  of  equal  value  with  full  gold  money  of  the  stand- 
ard weight  and  fineness  if  it  be  not  in  too  great 

1  Reply  to  Mr.  Bosanquet,   Works,  pp.  345-347. 


EXCHANGEABLE  VALUE  173 

abundance.  It  becomes,  then,  of  importance  to 
ascertain  what  is  too  great  abundance  or  excess  of 
money,  and,  unfortunately,  Mr.  Ricardo's  account 
is  so  confusing  that  it  is  impossible  to  determine 
what  excess  is.  We  will  see  what  Mr.  Ricardo  has 
to  say  about  it. 

"  The  whole  paper  money  of  every  kind  which  can 
easily  circulate  in  any  country  can  never  exceed  the 
value  of  the  gold  and  silver  of  which  it  supplies  the 
place,  or  which  (the  commerce  being  supposed  the  same) 
would  circulate  there  if  there  were  no  paper  money." 

"  I  do  most  unequivocally  admit,  that  whilst  the  high 
price  of  bullion  and  the  low  exchanges  continue,  and 
whilst  our  gold  is  undebased,  it  would  to  me  be  no  proof 
of  our  currency  not  being  depreciated  if  there  were  only 
five  millions  of  bank  notes  in  circulation.  When  we 
speak,  therefore,  of  an  excess  of  bank  notes,  we  mean 
that  portion  of  the  amount  of  the  issues  of  the  bank 
which  can  now  circulate,  but  could  not,  if  the  currency 
were  of  its  bullion  value."  ' 

'  The  quantity  of  money  that  can  be  employed  in  a 
country  must  depend  on  its  value:  .  .  ." 

"  A  circulation  can  never  be  so  abundant  as  to  over- 
flow; for,  by  diminishing  its  value,  in  the  same  proportion 
you  will  increase  its  quantity,  and  by  increasing  its  value, 
diminish  its  quantity."  a 

"  The  circulation  can  never  be  over-full.  If  it  be  one 
of  gold  and  silver,  any  increase  in  its  quantity  will  be 
spread  over  the  world.  If  it  be  one  of  paper,  it  will 
diffuse  itself  only  in  the  country  where  it  is  issued."  * 

1  Reply  to  Mr.  Bosanquet,   Works,  pp.  344,  349,  350. 

2  Currency  and  Banks,   Works,  p.  213. 

'  High  Price  of  Bullion,  Works,  p.  285. 


NATURE,  USES,  AND  VALUE  OF  MONEY 


"  The  plea  that  no  more  is  issued  than  the  wants  of 
commerce  require  is  of  no  weight;  because  the  sum  re- 
quired for  such  purpose  cannot  be  defined.  Commerce 
is  insatiable  in  its  demands,  and  the  same  portion  of  it 
may  employ  ten  millions  or  one  hundred  millions  of  cir- 
culating medium;  the  quantity  depends  wholly  on  its 
value.  If  the  mines  had  been  ten  times  more  produc- 
tive, ten  times  more  money  would  the  same  commerce 
employ."  1 

Although  it  may  appear,  at  first  glance,  from  the 
above  quotations  that  as  to  paper  money  no  more  can 
circulate  than  the  amount  of  gold  and  silver  which 
would  have  circulated,  yet  this  is  no  limitation  at 
all,  because  the  circulation  of  gold  and  silver  can 
never  be  so  abundant  as  to  overflow.  It  can  never 
be  over-full,  and  the  sum  required  by  commerce  can- 
not be  defined,  and  commerce  is  insatiable.  All  of 
which  means  that  there  is  no  such  thing  as  excess  or 
too  great  abundance  of  currency. 

Small  cause,  then,  for  wonder  that  so  many  per- 
sons still  cling  to  the  yfotf-money  theory,  when  so 
distinguished  a  financial  writer  as  Ricardo  proclaimed 
the  doctrine  that  no  matter  how  debased  a  coinage, 
may  become,  no  matter  to  what  a  small  percentage 
the  metal  in  the  coin  may  be  reduced,  still  this  de- 
based coin  will  pass  in  the  currency  for  just  as  much 
as  coin  of  the  standard  weight  and  fineness;  and 
that  it  is  not  necessary  that  paper  money  should  be 
payable  in  specie  in  order  to  secure  its  value. 

But  this  doctrine  is  not  true.     True  enough,  de- 

1  Reply  to  Mr.  Bosanquet,  etc.,  Works,  p.  341. 


EXCHANGEABLE  VALUE  1/5 

based  coin  will  for  a  short  time  remain  in  circulation 
without  its  baneful  influence  being  felt,  but  it  will 
not  remain  so  in  circulation  for  a  sufficient  length  of 
time  to  justify  the  deduction  that  it  is  a  principle 
of  money  that  the  debased  money  is  just  as  useful 
and  is  worth  just  as  much  in  the  currency — that  is, 
for  use  as  money,  as  full  standard  coin  is. 

This  doctrine  is  completely  disproved  by  all  history 
and  experience. 

Hallam,  in  The  Middle  Ages,  vol.  iii.,  part  2,  chap. 
ix.,  says: 

"  Under  Henry  VI.  the  coin  had  lost  one  third 
of  its  weight  in  silver,  which  caused  a  proportional 
increase  of  money  prices."  To  which  he  adds  the 
following  note: 

"  I  have  sometimes  been  surprised  at  the  facility  with 
which  prices  adjusted  themselves  to  the  quantity  of  silver 
contained  in  the  current  coin,  in  ages  which  appear  too 
ignorant  and  too  little  commercial  for  the  application  of 
this  mercantile  principle.  But  the  extensive  dealings 
of  the  Jewish  and  Lombard  usurers,  who  had  many 
debtors  in  almost  all  parts  of  the  country,  would  of 
itself  introduce  a  knowledge,  that  silver,  not  its  stamp, 
was  the  measure  of  value.  I  have  mentioned  in  another 
place  the  heavy  discontents  excited  by  this  debasement 
of  the  coin  in  France.  .  .  .  Wykes,  an  annalist  of 
Edward  I.'s  age,  tells  us,  that  the  Jews  clipped  our  coin, 
till  it  retained  hardly  half  its  due  weight,  the  effect  of 
which  was  a  general  enhancement  of  prices,  and  decline 
of  foreign  trade." 

Macaulay,    in    his    famous    twenty-first    chapter, 


176       NATURE,    USES,   AND   VALUE   OF   MONEY 

which  has  been  quoted  so  often,  but  which  is  so 
truthful  and  so  forceful  that  it  will  bear  any  number 
of  repetitions  with  profit  to  the  reader,  speaking  of 
the  time  of  the  reign  of  King  William  the  Third  and 
the  great  recoinage  of  1696,  says: 

"  The  silver  coin,  which  was  then  the  standard  coin  of 
the  realm,  was  in  a  state  at  which  the  boldest  and  most 
enlightened  statesmen  stood  aghast. 

"  The  horse  in  the  Tower  still  paced  his  rounds. 
Fresh  wagon -loads  of  choice  money  still  came  forth  from 
the  mill ;  and  still  they  vanished  as  fast  as  they  appeared. 
Great  masses  were  melted  down;  great  masses  exported; 
great  masses  hoarded;  but  scarcely  one  new  piece  was 
to  be  found  in  the  till  of  a  shop,  or  in  the  leathern  bag 
which  the  farmer  carried  home  after  the  cattle-fair. 
Meanwhile  the  shears  of  the  clippers  were  con- 
stantly at  work.  The  coiners,  too,  multiplied  and  pros- 
pered ;  for  the  worse  the  current  money  became,  the  more 
easily  it  was  imitated.  During  many  years  this  evil  went 
on  increasing.  At  first  it  was  disregarded;  but  it  at 
length  became  an  insupportable  curse  to  the  country.  .  .  . 

"  The  evil  proceeded  with  constantly  accelerating 
velocity.  At  length  in  the  autumn  of  1695,  it  could 
hardly  be  said  that  the  country  possessed,  for  practical 
purposes,  any  measure  of  the  value  of  commodities.  It 
was  a  mere  chance  whether  what  was  called  a  shilling 
was  really  tenpence,  sixpence,  or  a  groat. 
There  were  indeed  some  northern  districts  into  which 
the  clipped  money  had  only  begun  to  find  its  way.  An 
honest  Quaker,  who  lived  in  one  of  these  districts,  re- 
corded, in  the  some  notes  which  are  still  extant,  the 
amazement  with  which,  when  he  travelled  southward, 
shopkeepers  and  innkeepers  stared  at  the  broad  and 


EXCHANGEABLE  VALUE  177 

heavy  half-crowns  with  which  he  paid  his  way.  They 
asked  whence  he  came,  and  where  such  money  was  to 
be  found.  The  guinea  which  he  purchased  for  twenty- 
two  shillings  at  Lancaster  bore  a  different  value  at  every 
stage  of  his  journey.  When  he  reached  London  it  was 
worth  thirty  shillings,  and  would  have  been  worth  more 
had  not  the  government  fixed  that  rate  as  the  highest  at 
which  gold  should  be  received  in  the  payment  of  taxes." 
"  The  evils  produced  by  this  state  of  the^  currency 
were  not  such  as  have  generally  been  thought  worthy  to 
occupy  a  prominent  place  in  history.  Yet  it  may  well  be 
doubted  whether  all  the  misery  which  had  been  inflicted 
on  the  English  nation  in  a  quarter  of  a  century  by  bad 
kings,  bad  ministers,  bad  parliaments,  and  bad  judges, 
was  equal  to  the  misery  caused  in  a  single  year  by  bad 
crowns  and  bad  shillings.  .  .  .  The  evil  was  felt 
daily  and  hourly  in  almost  every  place  and  by  almost 
every  class,  in  the  dairy  and  on  the  threshing-floor,  by 
the  anvil  and  by  the  loom,  on  the  billows  of  the  ocean 
and  in  the  depths  of  the  mine.  Nothing  could  be  pur- 
chased without  a  dispute.  Over  every  counter  there  was 
wrangling  from  morning  to  night.  The  workman  and 
his  employer  had  a  quarrel  as  regularly  as  the  Satur- 
day came  round.  On  a  fair-day  or  a  market-day  the 
clamors,  the  reproaches,  the  taunts,  the  curses,  were  in- 
cessant; and  it  was  well  if  no  booth  was  overturned  and 
no  head  broken.  No  merchant  would  contract  to  de- 
liver goods  without  making  some  stipulation  about  the 
quality  of  the  coin  in  which  he  was  to  be  paid.  Even 
men  of  business  were  often  bewildered  by  the  confusion 
into  which  all  pecuniary  transactions  were  thrown.  The 
simple  and  the  careless  were  pillaged  without  mercy  by 
extortioners  whose  demands  grew  even  more  rapidly  than 
the  money  shrank.  The  price  of  the  necessaries  of  life, 


1/8       NATURE,  USES,  AND   VALUE   OF   MONEY 

of  shoes,  of  ale,  of  oatmeal,  rose  fast.  The  laborer 
found  that  the  bit  of  metal,  which,  when  he  received  it, 
was  called  a  shilling,  would  hardly,  when  he  wanted  to 
purchase  a  pot  of  beer  or  a  loaf  of  rye  bread,  go  as  far 
as  sixpence." 

Shaw,  in  his  work  entitled  The  History  of  Cur- 
rency, page  123,  in  speaking  of  the  Tudor  debase- 
ment of  the  currency,  which  was  nothing  more  than 
raising  the  coins,  or  reducing  the  quantity  of  metal 
in  the  coin,  says  as  follows : 

"  For  the  purpose  of  external  or  foreign  trade,  a  de- 
basement of  currency  is  fatuous  and  pernicious.  The 
coins  are  estimated  at  their  content  of  pure  metal,  and 
the  international  exchange  is  so  rated.  The  consequence 
is  an  apparent  rise  of  foreign  prices  proportioned  to  the 
extent  of  the  debasement.  This  at  once  unsettles  inter- 
nal or  home-trade  prices,  and  they  rise  to  the  same  level, 
but  with  such  inequality  of  motion  as  may  happen  to 
follow  from  friction,  local  ignorance,  want  of  communi- 
cation, or  from  the  intricacies  of  trade.  The  inequality 
of  exchange  coinage  rates  which  results  from  this  is  the 
bullionist's  or  the  financier's  opportunity,  and  swiftly 
and  invisibly  the  good  species — or  any,  bad  or  good, 
upon  which  any  differential  profit  can  be  had — disappear 
from  circulation.  The  consequence  is  that  the  rising 
prices  which  instituted  the  process  are  no  longer  accom- 
panied by  an  expanding  or  increasing  volume  of  currency, 
but  on  the  contrary,  with  an  enormous  decrease  in  the 
total  of  acceptable  or  efficient  currency.  Hence  corne 
decay  of  trade,  and  ruin  of  town  and  country.  This  is  no 
paper,  a  priori  argument.  It  is  the  patent  unmistakable 
statement  of  history  and  fact." 


EXCHANGEABLE   VALUE  1/9 

And  again  in  speaking  of  the  time  of  the  reign  of 
William  the  Third,  pp.  222-225,  he  says: 

"  By  the  time  of  the  accession  of  William  III.  the 
scarcity  of  silver  had  become  so  great  as  to  cause  a  peti- 
tion from  divers  working  goldsmiths  in  and  about  the 
city  of  London  to  the  House  of  Commons  (Qth  April, 
1690).  It  stated:  '  That  upon  search  at  the  customs 
they  found  that  since  last  October  entries  had  been  made 
of  286,102  ounces  of  silver  in  bullion,  and  89,949  dollars 
and  pieces  of  eight  for  exportation  by  divers  private  per- 
sons, and  they  doubted  not  but  it  would  appear  that 
not  only  the  East  India  Company,  but  also  divers  Jews 
and  merchants,  had  of  late  bought  up  great  quan- 
tities of  silver  to  carry  out  of  the  kingdom,  and  had 
given  \\d.  per  ounce  above  the  value,  which  had  en- 
couraged the  melting  down  of  much  plate  and  milled 
monies  ;  whereby  for  six  months  past,  not  only  the 
petitioners  in  their  trade,  but  the  mint  itself  had  been 
stopped  from  coining." 

"  In  addition  to  this  actual  drain  of  coinage,  the  pro- 
cesses of  culling,  clipping,  and  counterfeiting,  which  had 
been  going  on  through  the  reigns  of  Charles  II.  and 
James  II.,  had  resulted  in  an  unexampled  depreciation 
of  so  much  of  the  coinage  as  remained.  A  large  portion 
of  the  currency  consisted  of  iron,  brass,  or  copper-pieces 
plated,  and  such  coins  as  were  of  good  silver  were  worth 
scarcely  one-half  their  current  value." 

'  The  process  of  stripping  the  country  of  currency 
was  increased  by  the  continual  pouring  out  of  money  in 
aid  of  William's  wars,  and  the  loss  in  exchange  on  such 
large  remittances  made  the  evil  only  too  apparent.  .  .  . 
Guineas,  which  were  equal  in  value  to  2is.  6d.  rose  to 
thirty  shillings;  and  they  would  have  risen  to  a  still  higher 


l8o       NATURE,  USES,  AND   VALUE   OF   MONEY 

rate  if  the  officers  of  the  exchequer  and  the  receivers  of 
public  revenue  had  not  refused  to  receive  them  in  pay- 
ment at  the  increased  value." 

'  The  great  recoinage  scheme  was  only  completely  ac- 
complished in  1699.  .  .  .  According  to  the  accounts 
of  the  officers  of  the  Mint,  the  new  silver  coin  amounted 
in  tale  to  ^"6,882,908  19^.  7^.  The  worn  and  clipped 
money  called  in  was  estimated  roughly  at  ^4,000,000, 
on  which  the  loss  was  about  ^2, 000,000;  the  whole 
charge  and  loss  being  stated  at  not  less  than  £2,- 
700,000." 

The  cost  to  the  government  to  restore  this  coinage 
was  £2, 700,000. 

The  facts  of  history  are  simply  crushing.  They 
conclusively  show  that  debased  coin  will  not  pass  in 
circulation  for  the  same,  or  as  much,  as  it  would  if  it 
were  of  full  standard  weight ;  that  the  scarcity  of 
money  will  not  enable  the  debased  coin  to  pass  for 
any  more  in  the  circulation  than  if  there  was  no 
scarcity,  for  the  facts  show  that  during  all  the  time 
of  the  debasement  and  of  its  evil  effects,  the  quan- 
tity of  currency  was  constantly  decreasing;  nor  do 
the  facts  show  that  debased  money  will  not  de- 
preciate in  proportion  to  the  debasement.  Guineas 
which  were  worth  2is.  6d.  in  silver  passed  for  thirty 
shillings,  that  is  a  depreciation  of  almost  one-third. 
The  report  of  the  officers  of  the  Mint  shows  that  the 
loss  on  recoinage  was  something  over  one-third, 
which,  of  course,  means  that  the  debasement  of  the 
coin  was  something  over  one-third.  The  proportion 
of  depreciation  of  the  coin  is  near  enough  to  exclude 
all  inferences  that  it  would  have  depreciated  still 


EXCHANGEABLE   VALUE  l8l 

more  if  there  had  not  been  such  a  limited  quantity 
of  the  coin.  Besides,  our  historians  tell  us  that  the 
guinea  would  have  risen  still  higher,  had  not  the 
receivers  of  public  revenue  refused  to  receive  them 
in  payment  at  the  increased  value. 

Ricardo  himself  admits  the  facts  of  history  and 
the  correctness  of  the  conclusions  here  drawn  from 
them. 

In  his  same  works  he  says: 

"  The  public  has  sustained,  at  different  times,  very 
serious  loss  from  the  depreciation  of  the  circulating 
medium,  arising  from  the  unlawful  practice  of  clipping 
the  coins. 

"  In  proportion  as  they  become  debased,  so  the  prices 
of  every  commodity  for  which  they  are  exchangeable  rise 
in  nominal  value,  not  excepting  gold  and  silver  bullion: 
accordingly  we  find,  that  before  the  recoinage  in  the  reign 
of  King  William  the  Third,  the  silver  currency  had  be- 
come so  degraded,  that  an  ounce  of  silver,  which  ought  to 
be  contained  in  sixty-two  pence,  sold  for  seventy-seven 
pence;  and  a  guinea,  which  was  valued  at  the  mint  at 
twenty  shillings,  passed  in  all  contracts  for  thirty  shil- 
lings. This  evil  was  then  remedied  by  the  recoinage. 
Similar  effects  followed  from  the  debasement  of  the 
gold  currency,  which  were  again  corrected  in  1774  by 
the  same  means." 

"  If  one  fifth  were  taken  off  from  every  guinea,  the 
market  price  of  gold  bullion  would  rise  one  fifth  above 
the  Mint  price.  ...  If  such  debased  coin  were  to 
continue  to  be  called  by  the  name  of  guineas,  and  if  the 
value  of  gold  bullion  and  all  other  commodities  were 
rated  in  the  debased  coin,  a  guinea  fresh  from  the  Mint 


1 82       NATURE,    USES,   AND   VALUE  OF   MONEY 

would  be  said  to  be  worth  one  pound  five  shillings,  and 
that  sum  would  be  given  for  it  by  the  illicit  trader;  but 
it  would  not  be  the  value  of  the  new  guinea  which  had 
increased,  but  that  of  the  debased  guineas  which  had 
fallen."  ' 

"  If  guineas  were  degraded  by  clipping  to  half  their 
present  value,  every  commodity  as  well  as  land  would 
rise  to  double  its  present  nominal  value." 

"  The  following  observations  of  Dr.  Smith  on  this 
subject  are  so  important,  that  I  cannot  but  recommend 
them  to  the  serious  attention  of  all  thinking  men. 

"  '  The  raising  the  denomination  of  the  coin  has 
been  the  most  usual  expedient  by  which  a  real  public 
bankruptcy  has  been  disguised  under  the  appearance 
of  a  pretended  payment.  If  a  sixpence,  for  example, 
should,  either  by  act  of  parliament  or  royal  proclamation, 
be  raised  to  the  denomination  of  a  shilling,  and  twenty 
sixpences  to  that  of  a  pound  sterling,  the  person,  who, 
under  the  old  denomination  had  borrowed  twenty  shil- 
lings, or  near  four  ounces  of  silver,  would,  under  the 
new,  pay  with  twenty  sixpences,  or  with  something  less 
than  two  ounces.  A  national  debt  of  about  one  hundred 
and  twenty  millions,  nearly  the  capital  of  the  funded 
debt  of  Great  Britain,  might  in  this  manner  be  paid  with 
about  sixty-four  millions  of  our  present  money.  It 
would  indeed  be  a  pretended  payment  only,  and  the 
creditors  of  the  public  would  be  defrauded  of  ten  shil- 
lings in  the  pound  of  what  was  due  to  them.  The 
calamity,  too,  would  extend  much  further  than  to  the 
creditors  of  the  public,  and  those  of  every  private  person 
would  suffer  a  proportionable  loss;  and  this  without  any 
advantage,  but  in  most  cases  with  a  great  additional  loss 

1  High  Price  of  Bullion,  Works,  pp.  273,  278. 


EXCHANGEABLE  VALUE  183 

to  the  creditors  of  the  public.  ...  A  pretended 
payment  of  this  kind,  therefore,  instead  of  alleviating, 
aggravates  in  most  cases  the  loss  of  the  creditors  of  the 
public;  and,  without  any  advantage  to  the  public,  ex- 
tends the  calamity  to  a  great  number  of  other  innocent 
people.  It  occasions  a  general  and  most  pernicious 
subversion  of  the  fortunes  of  private  people,  enriching 
in  most  cases  the  idle  and  profuse  debtor  at  the  expense 
of  the  industrious  and  frugal  creditor,  and  transporting  a 
great  part  of  the  national  capital  from  the  hands  which 
are  likely  to  increase  and  improve  it,  to  those  which  are 
likely  to  dissipate  and  destroy  it,'  etc. 

'  These  observations  of  Dr.  Smith  on  a  debased  money 
are  equally  applicable  to  a  depreciated  paper  currency. 
He  has  enumerated  but  a  few  of  the  disastrous  conse- 
quences which  attend  the  debasement  of  the  circulating 
medium,  but  he  has  sufficiently  warned  us  against  trying 
such  dangerous  experiments."  * 

The  story  of  the  paper  money  issued  in  France — 
assignats  and  mandats — during  the  French  Revolu- 
tion, and  of  the  paper  money  issued  by  our  colonies, 
and  of  the  Continental  money  issued  during  our  revo- 
lution, has  been  told  so  often  of  late  that  it  is  in 
everybody's  mouth,  and  people  have  grown  tired 
reading  and  hearing  about  it.  The  story  is  only  re- 
called here  as  an  item  of  evidence  to  prove  that  it  is 
necessary  in  order  to  secure  the  value  of  paper  money 
that  it  be  payable  in  specie,  otherwise,  like  the 
French  assignats  and  the  Colonial  and  Continental 
monies,  it  depreciates,  and  depreciates  more  and 
more  until  it  has  no  exchangeable  value  at  all ;  until 

1  High  Price  of  Bullion,  Works,  pp.  287-289. 


184      NATURE,  USES,  AND   VALUE   OF   MONEY 

a  dealer  will  refuse  to  part  with  any  article  of  goods, 
no  matter  how  small  in  value,  in  exchange  for  any 
quantity  of  this  money.  The  phrase  "  not  worth 
a  continental  "  became  a  synonym  for  absolute 
worthlessness,  because  the  Continental  money  was 
absolutely  worthless.  Nor  is  it  true  that  these 
moneys  depreciated  only  because  they  were  issued 
in  excess.  One  instance  within  the  recollection  of 
most  men  will  show  that  excess  alone,  as  the  word 
is  used  by  Ricardo,  will  not  cause  depreciation  ex- 
cept in  cases  where  the  issues  are  in  excess  of  the 
ability,  or  supposed  ability,  of  the  issuer  to  pay  the 
notes;  then  the  paper  becomes  discredited.  But 
this  is  nothing  more  than  saying  that  the  value  of 
the  notes  depends  upon  the  credit  of  the  issuer  and 
of  the  opinion  of  its  ability  to  pay.  So  long  as  paper 
money  is  not  issued  in  such  quantities  so  that  the 
amount  outstanding  is  not  beyond  the  supposed 
ability  of  the  issuer  to  pay,  then  any  amount  of  any 
so-called  excess  in  currency  will  not  depreciate  the 
notes.  During  our  late  civil  war  when  the  greenbacks 
were  first  issued  in  1862,  $100,000,000  was  first 
issued.  This  quantity  of  paper  money  was  not  as 
great  as  the  quantity  of  gold  which  had  been  driven 
out  of  circulation  just  previously  to  the  issue  of  the 
greenbacks,  and  yet  the  greenbacks  depreciated  as 
soon  as  they  were  issued,  and  they  depreciated  or 
appreciated  all  through  the  war  with  the  failures 
or  successes  of  the  Union  armies;  the  value  of  the 
greenback  varied  with  the  varying  fortunes  of  the 
war.  After  the  close  of  the  war  the  greenbacks 
still  remained  depreciated,  although  the  quantity  of 


EXCHANGEABLE  VALUE  185 

them  in  circulation  remained  the  same.  But  with 
the  resumption  of  specie  payments  in  1879,  by 
which  the  greenbacks  were  made  payable  in  specie, 
the  greenback  reached  par  with  gold,  and  was  just 
as  good  in  exchange  as  gold,  although  the  amount 
of  greenbacks  in  circulation  had  not  been  reduced  to 
the  extent  of  a  single  dollar. 

The  law  can  compel  a  man  to  accept  payment  of 
an  existing  indebtedness  in  depreciated  money,  but 
it  cannot  compel  him  to  sell  or  part  with  his  goods 
and  property  and  accept  in  payment  depreciated 
money  at  any  value  the  government  or  anyone  else 
may  fix  or  declare.  Hence  we  find  from  history 
that  a  result  of  a  depreciation  of  the  currency  or 
money  has  always  been  that  the  owner  of  goods 
either  demanded  more — a  greater  price — for  the 
goods,  or  else  refused  to  part  with  his  goods  at  all 
in  exchange  for  the  depreciated  money.  The  reason, 
then,  why  the  commodity  used  as  money  must  have 
exchangeable  value,  is  because  people  will  not  have 
and  will  not  accept  any  other  kind.  A  simple 
enough  reason,  but  it  is  all-sufficient,  and  cuts  off 
all  debate  on  the  whys  and  wherefores.  It  is  the 
fiat  of  the  commercial  world,  and  that  settles  it. 
There  is  no  appeal  from  this  judgment :  it  will  re- 
main in  force  until  the  commercial  world  reverses 
this  judgment,  and  by  common  consent  agrees  to, 
and  does,  accept  mere  signs,  tokens,  or  any  other 
valueless  thing  or  ideals  as  money. 


PART  II 

OF  CREDIT  AND  THE  CREDIT  SYSTEM 


CHAPTER  I 

GENERAL   OBSERVATIONS 

§  I.  THE  word"  credit,"  in  commerce  has  several 
meanings,  (i)  It  is  that  trust  and  confidence  which 
one  man  reposes  in  another,  and  which  induces  the 
former  to  sell  and  deliver  his  goods  to  the  latter 
upon  an  agreement  by  the  latter  of  payment  at  some 
future  day;  the  seller  gives  the  purchaser  "  credit," 
and  the  purchaser  receives  the  "  credit,"  and  it  is 
the  purchaser's  credit  which  enables  him  to  purchase 
goods  under  said  conditions.  (2)  The  claim  which 
the  seller  of  the  goods  has  against  the  purchaser  for 
the  purchase  money  of  the  goods  is  a  "  credit  "  to 
him,  whilst  it  is  a  debt  or  a  debit  against  the  pur- 
chaser. (3)  The  word  "  credit  "  is  also  used  as  a 
name  for  that  system  which  should  be  called  "  the 
credit  system,"  by  means  of  which  payment  of  in- 
debtedness is  made  without  the  use  of  money.  As 
a  matter  of  fact,  over  ninety  per  cent,  (many  persons 
hold  that  it  is  at  least  ninety-seven  per  cent.)  of  all 
business  is  transacted,  of  all  goods  are  purchased, 

1 86 


GENERAL   OBSERVATIONS  1 87 

and  of  all  payments  are  made,  by  means  of  credit, 
and  without  the  use  of  a  dollar  of  money.  The 
credit  system  implies  the  other  two  forms  of  credit, 
but  the  other  forms  of  credit  do  not  imply  the 
credit  system. 

§  2.  The  influence  of  the  first  form  of  credit  on 
prices  has  already  been  considered ;  it  now  remains 
to  consider  credit  and  the  credit  system  as  a  means 
of  payment.  This  system  embraces  all  devices  by 
which  payments  are  properly  made,  without  the  use 
of  money,  except  strict  and  direct  barter.  But  this 
system  is  indirectly  and  really  a  system  of  barter, 
for  by  it  goods  and  services  pay  for  goods  and  ser- 
vices. By  this  system  a  man  applies  his  credits  to 
the  payment  of  his  debts.  Simply  stated,  this 
system  is  one  of  set-off,  by  which  men  set  off  the 
debts  which  others  owe  them  against  those  which 
they  owe  to  others.  Among  the  instruments  of  this 
system  are  Books  of  Accounts,  Promissory  Notes 
and  Bills  of  Exchange,  Deposits  in  Banks,  Bank 
Checks  and  Banks,  and  Clearing-Houses. 

§  3.  The  general  opinion  seems  to  be  that  the 
credit  system  is  a  modern  device;  invented  espe- 
cially for  the  purpose  of  lessening  the  use  of  money, 
or  making  a  less  quantity  of  money  sufficient  for  the 
purposes  of  commerce;  or,  in  other  words,  as  a 
substitute  for  money,  and  that  the  extent  of  credit 
depends  upon  the  quantity  of  money  in  the  country ; 
but  these  views  are  all  erroneous,  and  the  slightest 
reflection  will  show  them  to  be  so.  Business  done 
on  credit  is  borrowing,  and  is  also  a  phase  of  barter. 
It  is  the  obtaining  of  a  sum  of  money  or  of  particu- 


188  CREDIT  AND   THE  CREDIT  SYSTEM 

lar  goods  in  the  present  upon  the  promise  or  under- 
taking of  the  purchaser  or  the  borrower  to  repay  the 
money  or  to  return  either  the  same  goods  or  their 
equivalent  at  some  future  time.  It  is  but  a  phase  of 
barter,  and  only  differs  from  the  examples  of  direct 
barter  used  by  writers  in  this,  that,  instead  of  there 
being  an  immediate  delivery  of  both  of  the  differ- 
ent articles  bartered  or  exchanged,  there  is  only 
a  present  delivery  on  the  one  side,  the  delivery  on 
the  other  side  not  being  made  until  some  time  in 
the  future.  The  hunter  finds  his  stock  of  powder 
and  lead  exhausted,  and  cannot  go  the  great  dis- 
tance to  the  trader  where  he  can  barter  his  furs  for 
powder  and  lead,  so  he  goes  to  his  nearest  neighbor 
and  borrows  a  supply  of  powder  and  lead  from  him, 
with  the  understanding  that  he  will  return  equal 
quantities  of  both  at  some  future  time  after  he  has 
exchanged  his  furs  for  powder  and  lead.  The  herds- 
man finds  that  his  stock  of  salt,  for  the  use  of  his 
cattle,  has  been  exhausted,  and  he  goes  to  his  neigh- 
bor and  procures  a  supply  with  the  understanding 
that  he  will  return  the  same  quantity  at  some  future 
time.  The  owner  of  a  colt  of  a  certain  breed  of 
horses  barters  with  the  owner  of  a  cow  of  a  particu- 
lar breed  of  cattle  by  which  he  transfers  the  colt  to 
the  owner  of  the  cow,  under  the  agreement  that  the 
latter  will,  at  some  future  time,  deliver  to  the  former 
a  calf  from  the  cow;  and  so  one  can  go  around  the 
whole  range  of  human  wants  and  desires.  It  thus 
appears  that  credit  is  but  a  species  of  barter,  and  in 
the  very  nature  of  things  must  have  existed  ante- 
cedent to  the  use  of  money.  Surely  we  are  not 


GENERAL   OBSERVATIONS  189 

expected  to  believe  that  human  trust  and  confidence 
did  not  exist  before  the  introduction  of  the  use  of 
money,  and  that  trust  and  confidence  are  the  result 
of  the  introduction  of  the  use  of  money,  and  depend 
upon  money,  and  that  they  are  but  a  substitute  for 
money.  Credit  and  the  credit  system,  then,  existed 
before  the  introduction  of  the  use  of  money,  and  it 
is  not  and  cannot  be  dependent  upon  the  quantity 
of  money ;  nor  are  they  mere  substitutes  for  money ; 
but  they  exist  and  operate  wholly  independent  of 
money,  and  would  continue  to  exist  and  operate 
just  as  successfully  and  extensively,  and  perhaps 
even  more  so,  were  there  not  one  cent  of  money  in 
existence;  for,  although  prices  and  amounts  are, 
under  the  credit  system,  expressed  in  terms  of 
money,  yet,  if  there  were  no  money  in  existence, 
credit  could  get  along  just  as  well  by  the  simple 
process  of  adopting  a  money  of  account  in  which  to 
express  prices  and  amounts.  Money  of  account  has 
already  been  explained  in  this  work. 

There  is  no  essential  difference  between  the  form 
of  original  credit  under  the  barter  system  and  that  of 
credit,  in  the  present,  under  the  money  system.  A 
borrows  $1000  from  B  under  an  agreement  that  the 
same  amount  is  to  be  returned  at  some  future  day ; 
that  is,  A  borrows  1000  pieces  of  gold  of  a  certain 
weight  and  fineness  from  B,  and  A  agrees  to  return 
the  same  number  of  pieces  of  gold  of  the  same  weight 
and  fineness,  or  their  equivalent,  at  some  future  day. 
Again,  A  transfers  a  colt  to  B,  B  agreeing  to  deliver 
to  A  in  exchange  therefor,  at  some  future  day,  a 
given  number  of  pieces  of  gold  of  a  certain  weight 


IQO  CREDIT   AND   THE    CREDIT   SYSTEM 

and  fineness.  What  is  the  difference  between  the 
ancient  and  modern  forms  of  credit,  except  in  the 
commodities  used  for  borrowing  or  exchanging  ? 
The  exception  makes  no  difference  at  all. 

As  the  general  opinion  that  credit  is  a  modern 
invention  is  a  mistake ;  so,  many  are,  also,  mistaken 
in  believing  that  some  of  the  instruments  of  credit 
are  entirely  modern  inventions;  all  of  which  will  be 
developed  as  we  go  along.  There  is  nothing  par- 
ticularly modern  in  the  principles  of  credit,  or  of  the 
credit  system,  although  both  have  been  expanded, 
developed,  and  improved  to  a  most  wonderful  de- 
gree in  modern  times. 


CHAPTER  II 

BOOKS   OF   ACCOUNT 

§  I.  THE  germ  of  the  credit  system  is  the  ordi- 
nary book  credit.  When  two  persons  have  mutual 
dealings,  instead  of  making  payment  at  each  trans- 
action, they  simply  debit  each  other  in  account  with 
the  proper  amount.  The  payment  is  deferred  to  a 
future  day.  Each  receives  and  enjoys  the  benefit 
of  the  goods  obtained  from  the  other,  and  each  is  to 
make  satisfaction  at  some  future  time.  We  will 
suppose  A  and  B  to  be  persons  so  dealing  with  each 
other;  at  the  end  of  the  year,  or  whenever  the  time 
of  periodical  settlement  arrives,  and  it  is  then,  upon 
casting  up  the  accounts,  found  that  B  has  received 
$700  worth  of  goods  from  A,  and  that  A  has  received 
$600  worth  from  B,  the  accounts  are  so  balanced, 
showing  B  indebted  to  A  in  the  sum  of  $100.  If 
this  $100  be  paid,  then  the  whole  indebtedness  of 
$700  on  the  one  side  and  $600  on  the  other.side  is 
paid.  Whether  the  $100  be  paid  or  not,  $600  on 
each  side  of  the  account  is  extinguished  and  paid  by 
the  mutual  set-off  of  the  accounts  against  each  other. 
The  balance  of  $100  owing  by  B  to  A  may  not  be 
paid  at  all,  but  carried  over  as  a  debit  against  B  in 
the  account  for  the  next  settlement,  at  which  time 
A  may  be  found  to  have  received  from  B  an  amount 

191 


IQ2  CREDIT   AND   THE   CREDIT   SYSTEM 

of  goods  sufficient  to  pay  the  $100  and  all  the  goods 
B  received  from  A  in  the  meantime,  and  thus  the 
whole  amount  of  both  accounts  will  be  paid  and  dis- 
charged without  the  use  of  a  dollar  of-  money.  The 
balance  of  $100  owing  by  B  to  A  may  be  paid  in 
other  ways  without  the  use  of  money  ;  as,  for  in- 
stance, A  and  B  may  each  have  mutual  dealings  with 

C,  and  on  settlement  A  is  found  to  be  indebted 
to  C  in  the  sum  of  $100  or  over,  and  C  is  found  to 
be  indebted  to  B  in  that  amount  or  more,   B  will 
then  give  A  an  order  (which  is  in  effect  a  bill  of  ex- 
change) upon  C,  directing  the  latter  to  pay  to  A  the 
sum  of  $100,  and  this  order  enables  A  to  pay  off  so 
much  of  his  indebtedness  to  C;  or,  though  A  and  C 
have  no  mutual  dealings,  B  can  still  pay  the  $100 
due  by  him  to  A  by  an  order  on  C,  and  C  may  pay 
it  either  in  cash,  or  by  delivering  to  A  an  order  on 

D,  who  may  be  indebted  to  C,  and  so  on.     What  two 
persons  can  do  by  keeping  mutual  accounts,  three 
or  any  number  of  persons  can  do ;  each  one  will  be 
willing  to  set  off  what  is  owing  to  him  by  any  one  or 
all  of  the  others,  against  what  is  owing  by  him  to  one 
or  all  of  the  others.      The  whole  indebtedness  thus 
mutually  incurred  can  be  extinguished  by  the  simple 
process  of  set-off,  except  the  balance  which  may  be 
found  due  to  the  one  or  the  other.     The  importance 
of  accounts  and  of  bookkeeping  in  the  credit  system 
cannot  be  overestimated,  and  it  is  evident  that  it 
has  not  yet  reached  its  full  development.     Theoreti- 
cally all  the  debts  contracted  in  trade  may,  in  this 
way,  be  set  off  or  paid,  for  the  debits  and  the  credits 
are  equal,  and,  as  a  matter  of  course,  will  balance 


BOOKS   OF  ACCOUNT  193 

each  other.  As  explained  in  the  preceding  chapter, 
under  the  credit  system  a  man  discharges  or  pays 
his  debts  with  his  credits.  If  all  the  traders  of  a 
particular  community  kept  their  accounts  in  one  set 
of  books  every  man  would  be  thus  debited  and 
credited,  and  only  their  balances  would  remain  un- 
paid. This  supposititious  case  is  only  mentioned  in 
order  to  show  that  the  agency  of  book  accounts  is 

still  capable  of  a  wider  range  of  operations. 
13 


CHAPTER  III 

PROMISSORY   NOTES   AND   BILLS   OF   EXCHANGE 

§  I.  A  PROMISSORY  note  is  a  promise  in  writing 
to  pay  a  certain  sum  of  money,  and  a  bill  of  ex- 
change is  a  direction  in  writing  to  another  to  pay  a 
certain  sum  for  the  writer.  They  are  a  part  of  the 
credit  system,  and  are  the  evidences  of  the  debts 
created  by  business  transactions.  Their  day  of  pay- 
ment is  appointed  on  their  face.  Their  utility  is  not 
confined  to  merely  postponing  the  day  of  payment 
and  affording  the  debtor  time  to  arrange  for  pay- 
ment; they  may  perform  an  intermediate  office. 
The  seller  of  goods  for  $1000,  who  takes  a  bill  or 
note  for  the  amount  from  the  purchaser,  may  realize 
the  money  at  the  maturity  of  the  paper,  or  he  may 
at  once  purchase  goods  to  that  amount,  and  trans- 
fer the  bill  or  note  in  payment.  By  this  means, 
through  the  agency  of  the  paper,  he  exchanges 
goods  to  the  amount  of  $1000  for  goods  to  that 
amount;  that  is,  the  goods  sold  become  payment 
for  the  goods  bought,  and  the  same  note  or  bill  may, 
in  this  manner,  make  any  number  of  payments  for 
the  purchases  of  goods  by  the  parties,  respectively, 
negotiating  them  before  it  reaches  maturity;  and 
although,  eventually,  it  may  be  paid  in  money,  yet, 
meanwhile,  it  has  accomplished  payments  to  many 

194 


PROMISSORY  NOTES  AND  BILLS  OF  EXCHANGE       195 

times  its  amount.  But  it  is  very  rarely  ever  paid 
by  money,  but  in  the  vast  majority  of  cases  it  is 
paid  by  the  credits  of  the  maker  or  acceptor  in  a 
bank. 

Promissory  notes  and  bills  of  exchange  are  thus 
employed  to  purchase  goods,  which  are  again  sold 
for  other  notes  and  bills,  which  are  in  turn  used  to 
purchase  other  goods;  and  the  note  or  bill  may  pass 
through  any  number  of  hands,  accomplishing  a  pay- 
ment at  each  transfer.  Almost  the  whole  mass  of 
goods  in  trade  are  bought  and  sold  through  the 
agency  of  promissory  notes  or  bills  of  exchange, 
with  the  use  of  but  little  money,  except  for  retail 
business. 

The  most  general  way  in  which  the  holder  of  a 
bill  or  note  uses  it,  is  to  negotiate  it  with  a  bank,  or 
banker,  which  is  usually  called  discounting  it,  and 
the  proceeds  of  the  discount  (which  is  really  a  sale 
of  the  note  or  bill)  are  credited  to  the  holder  in  his 
deposit  account  with  the  bank  or  banker,  and  he 
draws  his  check  on  the  account  in  payment  of  his 
debts.  But  this  more  properly  belongs  to  the  sub- 
ject of  the  next  chapter. 


CHAPTER  IV 

DEPOSITS   IN  BANKS,    BANK   CHECKS,    AND   BANKS 

§  I .  A  BANK  is  a  borrower  and  a  lender  of  money, 
a  dealer  in  commercial  paper  or  securities,  and  a 
general  agent  for  the  collection  of  commercial  paper 
or  securities. 

Although  the  person  who  puts  money  in  a  bank 
is  called  a  depositor,  yet  the  contractual  relation  be- 
tween a  bank  and  the  depositor  is  not  that  of  bail- 
ment, but  of  debtor  and  creditor.  The  depositor 
places  the  money  in  the  bank,  and  thereupon  the 
money  becomes  the  property  of  the  bank  to  dispose 
of  as  it  sees  fit ;  but  the  bank  thereby  becomes  the 
debtor  of  the  depositor  to  the  amount  so  deposited, 
and  its  contract  or  liability  is  to  either  return  a  like 
amount  of  money  in  one  or  more  payments  to  the 
depositor,  or  to  other  persons  as  the  depositor  may, 
by  his  check,  or  checks,  drawn  on  the  bank,  direct. 
The  bank  thus  becomes  a  borrower  of  money,  usually 
without  hire  or  interest,  but  sometimes  it  pays  in- 
terest on  the  amounts  deposited.  A  bank  also  loans 
money.  A  customer  of  the  bank  desiring  to  borrow 
money  from  the  bank  usually  executes  his  note  for 
the  amount  payable  to  the  order  of  the  bank,  and 
which  note  is  secured  by  satisfactory  endorsements, 
or  by  collateral,  or  by  both ;  the  bank  deducts  the 

196 


DEPOSITS,  BANK   CHECKS,  AND   BANKS        197 

interest  in  advance,  which,  in  this  case,  it  calls  the 
discount,  and  either  pays  over  the  net  balance  to 
the  borrower  in  cash,  or  credits  him  with  the  amount 
in  his  account ;  the  bank  thus  becomes  a  lender  of 
money. 

A  customer  of  the  bank  has  received,  in  his  busi- 
ness transactions,  promissory  notes  or  bills  of  ex- 
change for  goods  sold  by  him ;  he  takes  these  notes 
and  bills  to  the  bank  and  sells  them  to  it ;  the  trans- 
action being  called  a  discount,  the  bank  deducts 
from  the  face  of  the  bills  a  certain  sum  called  dis- 
count, and  gives  the  difference  to  the  customer, 
either  by  crediting  him  with  the  proceeds  in  his  ac- 
count or  by  paying  them  over  directly  to  him.  In 
either  case  the  real  transaction  is  that  the  bank 
purchases  the  note  or  bill,  for  the  price  or  considera- 
tion agreed  upon.  Again,  the  customer  may  have 
a  payment  to  make  at  some  distant  point ;  in  order 
to  make  this  payment  he  purchases  from  his  bank 
what  is  called  a  bank-draft,  which  is  nothing  more 
than  a  bill  of  exchange  drawn  by  his  bank  on  its 
correspondent,  a  bank  in  some  other  place,  directing 
it  to  pay  the  amount  of  the  payment.  The  bank 
thus  becomes  a  dealer  in  commercial  paper. 

A  customer  of  the  bank  sells  a  bill  of  goods  and 
draws  a  bill  of  exchange  on  the  purchaser  for  pay- 
ment of  the  goods,  or  he  sells  the  goods  and  takes 
from  the  purchaser  his  promissory  note  in  payment. 
He  then  puts  the  bill  or  note  in  bank  for  collection, 
and  the  bank  after  collection  either  pays  the  cus- 
tomer the  proceeds  in  cash  or  gives  him  credit  for  the 
amount  in  his  account.  The  bank  also  in  the  same 


198  CREDIT  AND   THE   CREDIT   SYSTEM 

way  collects  for  its  customers  checks  drawn  on  other 
banks,  and  also  checks,  notes,  and  bills  forwarded 
to  it  by  banks  at  a  distance  for  collection.  The 
bank  thus  becomes  a  general  agent  for  the  collection 
of  commercial  paper. 

§  2.  As  a. bank  is  by  far  the  most  important  and 
effective  instrument  of  the  whole  credit  system,  a 
brief  consideration  of  its  methods  of  operation  will 
serve  to  convey  a  clearer  idea  of  the  credit  system 
than  can  be,  perhaps,  obtained  in  any  other  way. 

A  bank,  or  banker,  starts  out  with  a  certain 
amount  of  capital.  This  capital  constitutes  the 
nucleus  of  a  fund  out  of  which  the  bank  grants  loans 
to,  or  purchases  commercial  paper  from,  its  customers. 
Suppose  that  a  bank  starts  out  with  $100,000  capi- 
tal, and  that  $400,000  are  deposited  with  the  bank 
by  its  customers.  The  customers  will  not  draw  out 
this  money  immediately,  and  experience  has  shown 
that  while  some  of  the  depositors  may  draw  out  the 
whole  or  a  part  of  their  deposits,  others  will  deposit 
as  much  as  has  been  drawn  out,  and  thus  the  whole 
$500,000  constitutes  a  fund  for  loans  or  for  the  pur- 
chase or  discount  of  commercial  paper.  The  bank 
in  this  way  concentrates  within  itself  an  immense 
credit  fund,  which  is  available  for  business  transac- 
tions, and  this  fund  is  created  and  maintained 
almost  wholly  by  credit,  and  with  the  use  of  but 
little  actual  money.  If  this  fund  were  not  so  con- 
solidated in  the  bank,  very  little  of  it  would  be 
available,  in  the  hands  of  the  individual  depositor, 
as  a  credit  fund  for  business  purposes. 

§  3.     While  the  amounts  deposited  in  a  bank  by 


DEPOSITS,  BANK   CHECKS,  AND    BANKS        199 

the  depositors  form  a  fund  for  the  loaning  and  dis- 
counting purposes  of  the  bank,  they,  at  the  same 
time,  constitute  a  fund  for  the  payment  of  the  debts 
owing  by  the  depositors  without  the  acutual  use  of 
money. 

Take  the  case  of  a  small  community  where  there 
is  but  one  bank.  The  business  men  of  that  com- 
munity will  deposit  in  the  bank  and  do  business 
through  it.  Each  business  man  will  daily,  or  when- 
ever convenient,  deposit  with  the  bank  all  his  cash, 
except  mere  pocket  money ;  he  will  also  deposit  all 
checks,  either  on  the  same  bank  or  on  other  banks  at 
some  other  place,  which  he  has  received  in  the  .course 
of  his  business;  the  former  for  direct  credit,  and  the 
latter  for  credit  when  collected  to  his  account.  He 
will  also  place  in  the  bank  his  notes  and  bills  which 
he  holds  against  others  for  collection,  and  when  col- 
lected he  will  receive  credit  in  his  account  with  the 
bank,  or  he  may  negotiate  or  discount  the  bills  or 
notes  to  the  bank  and  receive  a  credit  in  his  account 
for  the  proceeds  of  the  discount;  or  he  may  wish  to 
borrow  a  sum  of  money  from  the  bank,  on  his  note 
or  other  commercial  paper;  upon  making  the  loan 
he  is  credited  with  the  amount  or  proceeds  of  the 
loan  in  his  account  with  the  bank.  In  all  these 
cases  of  deposits  of  checks,  either  for  collection  or 
otherwise,  the  collection  or  discount  of  notes  and 
bills,  it  is  very  seldom  that  the  proceeds  are  paid 
over  directly  in  cash  to  the  customer.  Usually, 
and  in  the  vast  majority  of  cases,  he  only  receives 
credit  for  the  respective  amounts  in  his  deposit  ac- 
count, and  these  deposits  constitute  the  fund  out  of 


200  CREDIT   AND   THE   CREDIT   SYSTEM 

which  he  pays  his  debts.  The  business  man  now  no 
longer  pays  a  bill  for  goods  which  he  has  purchased, 
or  a  balance  found  to  be  due  by  him  in  a  settlement 
between  him  and  his  neighbor,  with  actual  money, 
but  he  gives  to  his  creditor  his  check  on  the  bank 
for  the  amount,  which  check  is  nothing  more  than 
an  order  directed  to  the  bank,  ordering  it  to  pay  the 
sum  mentioned  in  the  check  to  the  holder  of  the 
check  out  of  his  deposit  fund  in  the  bank.  The  per- 
son receiving  the  check,  if  he  is  in  business  in  the 
same  community,  is  also  a  customer  of  the  bank; 
he  deposits  the  check  with  the  bank,  receiving  credit 
for  the  amount  in  his  account,  and  the  drawer  of 
the  check  is  charged  in  his  account  with  the  amount 
of  the  check ;  thus  the  debt  is  discharged  by  simply 
writing  a  charge  for  the  amount  in  the  account  of 
the  debtor,  and  by  writing  a  credit  in  the  account 
of  the  creditor  in  the  books  of  the  bank.  There 
may  be  ten,  twenty,  fifty,  a  hundred,  or  more  cus- 
tomers of  the  bank  doing  business  in  the  same 
community;  all  the  debits  and  credits  of  all  these 
customers  who  have  mutual  dealings  with  each  other 
will  meet  in  the  bank,  and  will  there  be  discharged 
by  writing  a  charge  in  one  account,  and  by  writing 
a  credit  in  another  account. 

Loans  and  paper  discounted  are  daily  falling  due 
and  are  paid  by  the  checks  of  the  debtors  on  their 
bank  account.  New  loans  and  discounts  and  de- 
posits are  being  made  constantly,  and  while  the  ac- 
count is  being  reduced  by  the  payment  of  checks 
drawn  upon  it,  it  is  being  augmented  by  additional 
deposits  and  credits  from  the  several  sources  above 


DEPOSITS,  BANK   CHECKS,  AND   BANKS        2OI 

mentioned.  Business  men  who  keep  accounts  in 
bank  are,  generally,  creditor  and  debtor  during  the 
year  to  almost  the  whole  extent  of  their  business. 
They  give  their  paper  for  the  purchases  they  make, 
and  they  take  the  paper  of  others  for  the  goods 
they  have  sold.  The  bank  discounts  for  them  the 
paper  they  have  received,  and  collects  from  them 
the  paper  they  have  given  to  others.  The  bank 
then  in  effect  keeps  the  books  of  account  of  its  cus- 
tomers, in  which  they  are  credited  with  what  is  due 
them  from  others,  and  debited  with  what  they  owe 
to  others.  This  deposit  fund  is  of  vast  facility  in 
enabling  the  business  man  to  pay  his  debts  without 
the  use  of  money,  and  to  set  off  his  credits  against 
his  debits.  The  effect  of  the  system  is  that  all 
credits  are  converted  into  a  fund  for  the  discharge 
of  debts,  and  credits  are  set  off  against  debits. 

§  4.  If  we  take  a  case  where  there  are  two  banks 
in  a  community  the  process  in  each  bank  will  be  the 
same  as  in  the  case  where  there  was  but  one  bank. 
Some  of  the  business  men  will  keep  their  account  in 
the  one  bank  and  some  in  the  other,  and  some  will 
keep  accounts  in  both  banks ;  but  between  the  two 
banks  all  the  mutual  accounts  between  the  customers 
of  both  banks,  and  all  the  debits  and  credits  of  all 
these  customers  will  be  settled  in  the  same  manner 
as  if  they  all  did  business  in  one  bank.  A  business 
man  receives  a  check  on  the  bank  of  which  he  is  not 
a  customer,  he  takes  this  check  and  deposits  it  in  the 
bank  in  which  he  keeps  his  account.  Every  other 
business  man  will  do  the  same;  the  consequence 
will  be  that  each  bank  will  hold  checks  to  a  certain 


2O2  CREDIT  AND  THE  CREDIT   SYSTEM 

amount  against  the  other.  The  two  banks  will  then 
be  in  the  position  of  two  traders  who  have  mutual 
accounts— each  an  account  against  the  other.  At 
most,  only  the  balance  due  by  one  bank  to  the 
other,  after  deducting  the  amount  held  by  the  one 
bank  against  what  is  held  by  the  other,  will  be  paid 
in  money;  but  it  is  not  usual  to  even  pay  this  bal- 
ance with  money,  but  it  is.  carried  over  until  the 
next  day,  when  the  balance  may  be  on  the  other 
side  of  the  account. 

The  same  process  takes  place  where  there  are 
more  than  two  banks  in  a  community;  each  bank 
settling  in  the  manner  indicated  with  each  of  the 
other  banks,  but  where  there  is  any  considerable 
number  of  banks  in  a  community  the  operation  be- 
comes very  slow  and  burdensome,  which  difficulties 
led  to  the  adoption  of  the  Clearing-House,  which 
will  be  the  subject  of  the  next  chapter. 


CHAPTER  V 

THE  CLEARING-HOUSE 

§  I.  THE  earliest  account  of  any  transaction 
which,  in  theory,  resembles  the  modern  clearing- 
house, that  has  come  under  my  observation,  is  Ma- 
homet's account  of  the  day  of  judgment  for  the 
faithful  Mussulman. 

"  The  doom  of  the  infidels  is  common;  the  measure 
of  their  guilt  and  punishment  is  determined  by  the  de- 
gree of  evidence  which  they  have  rejected,  by  the  magni- 
tude of  the  errors  which  they  have  entertained:  the 
eternal  mansions  of  the  Christians,  the  Jews,  the  Sabians, 
the  Magians,  and  idolaters,  are  sunk  below  each  other  in 
the  abyss;  and  the  lowest  hell  is  reserved  for  the  faithless 
hypocrites  who  have  assumed  the  mask  of  religion. 
After  the  greater  part  of  mankind  has  been  condemned 
for  their  opinions,  the  true  believers  only  will  be  judged 
by  their  actions.  The  good  and  evil  of  each  Mussulman 
will  be  accurately  weighed  in  a  real  or  allegorical  bal- 
ance; and  a  singular  mode  of  compensation  will  be 
allowed  for  the  payment  of  injuries:  the  aggressor  will 
refund  an  equivalent  of  his  own  good  actions,  for  the 
benefit  of  the  person  whom  he  has  wronged;  and  if  he 
should  be  destitute  of  any  moral  property,  the  weight  of 
his  sins  will  be  loaded  with  an  adequate  share  of  the  de- 
merits of  the  sufferer.  According  as  the  shares  of  guilt 

203 


204  CREDIT  AND   THE   CREDIT   SYSTEM 

or  virtue  shall  predominate,  the  sentence  will  be  pro- 
nounced, and  all,  without  distinction,  will  pass  over  the 
sharp  and  perilous  bridge  of  the  abyss;  but  the  innocent, 
treading  in  the  footsteps  of  Mahomet,  will  gloriously 
enter  the  gates  of  paradise,  while  the  guilty  will  fall  into 
the  first  and  mildest  of  the  seven  hells.  The  term  of  ex- 
piation will  vary  from  nine  hundred  to  seven  thousand 
years;  but  the  prophet  has  judiciously  promised,  that  all 
his  disciples,  whatever  may  be  their  sins,  shall  be  saved, 
by  their  own  faith  and  his  intercession,  from  eternal 
damnation."  * 

Truly,  a  grand  clearing  and  settlement  on  that 
Great  Day,  but  wonderfully  like  settlements  and 
adjustments  made  between  man  and  man ;  so  much 
so,  that  it  suggests  the  thought  that  it  was  modelled 
after  some  method  of  settlement  between  men  on 
this  earth.  The  good  is  set  off  against  the  evil. 

Mahomet  was  born  and  reared  in  Mecca,  where 
were  annually  assembled  the  pilgrims  of  the  Arabian 
world,  for  the  purposes  of  devotion  and  commerce, 
and  he  probably  then  learned  the  methods  of  busi- 
ness and  settlements  between  merchants.  He  made 
two  journeys  with  his  uncle  and  his  caravan  into 
Syria  to  the  fairs  at  Bostra  and  Damascus.  In  all  / 
probability  the  method  of  settlement  of  accounts 
between  the  merchants  attending  these  fairs  was 
similar  to  that  which  we  know  was  pursued  at  fairs 
at  subsequent  periods.  Doubtless  it  was  while  at- 
tending these  fairs  that  he  imbibed  the  notions  or 
theories  of  settlements,  which  he  afterwards  attri- 

1  See  Gibbon's  Decline  and  Fall  of  the  Roman  Empire,  chap.  L. 


THE   CLEARING-HOUSE  2O5 

buted  to  the  Almighty  in  his  final  settlement  with 
man. 

§  2.  The  origin  of  fairs  is  of  very  great  antiquity. 
We  have  seen  that  they  were  in  existence  in  Asia 
during  the  time  of  Mahomet.  During  the  thir- 
teenth, fourteenth,  and  fifteenth  centuries  the 
greater  part  of  the  commerce  of  Europe  was  trans- 
acted at  fairs. 

Naturally  merchants  found  that  they  could  make 
settlements  and  payment  of  debts  more  conven- 
iently then  than  at  any  other  time.  Bills  of  ex- 
change were  generally  made  payable  at  the  fairs 
attended  by  the  parties.  Fairs  were  held  at  inter- 
vals of  from  three  to  twelve  months,  and  payments 
to  large  amounts  were  effected  at  these  affairs.  We 
have  historical  accounts  of  the  methods  and  process 
of  payments  pursued  at  the  fairs  held  at  Lyons, 
which  will  serve  as  an  illustration  of  the  system  of 
payment  pursued  by  merchants  in  the  Middle  Ages. 

There  were  four  fairs  held  in  each  year  at  Lyons. 
Kings,  or  Epiphany,  began  in  January;  Easter,  in 
April;  August,  in  that  month;  and  All  Saints  in 
November.  Four  payments  were,  also,  held:  one 
at  each  fair.  The  Epiphany  payments  were  held  in 
all  March;  those  of  Easter  all  June;  those  of  August 
all  September;  and  those  of  All  Saints  all  Novem- 
ber. Engagements  to  great  amounts,  arising  out  of 
transactions  not  concluded  at  fairs,  were  made  pay- 
able at  these  payments  by  bills  of  exchange,  book 
accounts,  or  otherwise.  Merchants  who  resorted  to 
these  fairs,  opened  an  account  in  their  books  with 
each  payment  by  name. 


206          CREDIT  AND   THE   CREDIT  SYSTEM 

"  This  account  exhibited  the  sums  the  accountant  had 
promised  to  pay,  and  what  sums  others  had  agreed  to 
pay  him  at  each  payment,  and  the  names  of  the  persons 
debtors  and  creditors.  The  balance  of  this  account 
showed  at  once  how  much  each  merchant  had  to  pay 
more  than  he  was  to  receive,  or  to  receive  more  than  he 
was  to  pay,  at  each  payment." 

A  proportion  of  the  sales  of  merchandise  made 
during  the  fair  were  payable  at  the  payments  held 
with  the  fair.  Merchants  who  had  made  up  their 
accounts  previous  to  their  coming  to  the  fair  con- 
tinued their  entries  in  the  same  account  for  transac- 
tions payable  at  the  payments  held  with  or  after  the 
fair  until  it  closed. 

A  party  concerned  could  attend  the  payments  in 
person,  or  could  be  represented  by  an  agent  duly 
authorized,  who  could  present  the  duly  authenticated 
accounts  of  his  principal. 

Every  payment  was  opened  with  ceremony.  The 
Provost  Marchand  came  to  the  exchange  with  his 
Register  and  six  Syndics, — two  French,  two  Italians, 
and  two  Swiss  or  Germans.  The  first  five  days  were 
devoted  chiefly  to  the  presentation  and  acceptance 
of  such  bills  as  were  not  previously  accepted.  After 
the  fifth  day  no  more  bills  could  be  accepted ;  and 
before  the  meeting  on  the  sixth  day  all  the  accounts 
for  the  payment  must  be  definitely  written  out  and 
closed.  These  accounts  were  termed  Bilans,  being 
sheets  carefully  bound  or  fastened  together.  A 
balance  once  made  up  and  submitted  could  not  be 
altered  ;  every  accountant  being  held  responsible  for 


THE  CLEARING-HOUSE  2O/ 

the  correctness  of  his  entries.  Those  whose  business 
did  not  admit  their  being  the  bearers  of  Bilans  were 
permitted  to  send  in  their  debits  and  credits  by  any 
merchant  who  would  become  responsible,  by  adding 
them  to  his  own.  On  the  sixth  day  the  bearers  of 
these  statements,  or  Bilans,  assembled.  The  usual 
mode  of  adjustment  was  for  the  debtor  to  address 
himself  to  his  creditor  and  his  debtor,  and  procuring 
the  assumption  by  his  debtor  of  the  debt  which  he 
owed  to  the  creditor,  which  assumption  being  ac- 
cepted by  the  creditor  operated  as  a  settlement  and 
discharge  between  the  debtor  and  creditor  first 
named.  A  owes  B  $1000  and  B  owes  C  $i  500 ;  B  asks 
A  to  assume  $1000  of  his  debt  to  C ;  the  latter  accepts 
the  assumption,  and  $1000  is  thus  paid.  By  com- 
paring books  it  is  ascertained  that  D  owes  a  large 
sum  to  E,  the  latter  a  like  sum  to  F,  the  latter  a 
like  sum  to  G,  the  latter  a  like  sum  to  H ;  and  all 
being  met,  it  is  agreed  that  these  sums  shall  be  ac- 
quited  by  a  payment  from  D  directly  to  H.  These 
transfers  or  set-offs  were  entered  upon  the  book  of 
each  of  the  parties  concerned,  so  that  the  books 
showed  the  exact  progress  of  the  adjustment.  So 
long  as  anyone  who  owed  anything  had  any  amount 
coming  to  him,  he  could  apply  it  on  his  debt,  and 
the  adjustment  would  only  cease  when  the  debtors 
present  had  no  further  credits  which  they  could 
apply  to  the  further  reduction  of  their  indebtedness. 
After  which  nothing  more  remained  to  be  done  than 
for  those  indebted  to  pay  the  balances  of  their 
several  accounts  to  whomsoever  they  might  have 
become  indebted  in  the  many  assumptions  which 


208  CREDIT   AND   THE   CREDIT   SYSTEM 

had  occurred.  The  result  would  show  that  each 
person  would  have  to  pay  in,  at  last,  the  precise 
sum  which  his  statement  showed,  at  first,  he  was  in 
debt  more  than  what  was  coming  to  him,  and  each 
one  having  a  balance  due  him  would  receive,  after 
all  his  debts  were  paid,  the  sum  which  his  statement, 
at  first,  showed  was  coming  to  him  more  than  he 
owed.  By  perseverance  and  comparison  of  books, 
a  complete  discharge  of  all  mutual  indebtedness 
would  be  effected,  and  the  payment  of  the  balances 
would  discharge  the  whole. 

In  many  of  its  features  the  payment  at  these  fairs 
was  similar  to  the  process  of  clearing  through  the 
modern  clearing-house.  While  the  latter  is  greatly 
improved  and  the  process  of  payment  is  vastly  facili- 
tated, yet  the  underlying  principle  of  both  systems 
is  the  same — that  of  a  debtor  applying  or  setting  off 
his  credits  against  his  debts.  In  fact,  the  modern 
clearing-house  is  nothing  more  than  the  application 
of  ancient  methods  to  new  conditions. 

It  is  but  just  to  state  that  the  foregoing  account 
of  the  methods  of  payment  pursued  at  the  fairs  held 
at  Lyons  is  taken  from  a  work  by  Stephen  Colwell, 
entitled  Ways  and  Means  of  Payment,  page  275,  etc. 

§  3.  Mr.  Horace  White,  in  his  work  entitled 
Money  and  Banking,  page  239,  etc.,  gives  the  fol- 
lowing account  of  the  transaction  of  business  at  the 
New  York  Clearing-House,  which  may  be  taken  as 
a  type  of  the  others : 

"  There  are  sixty-seven  members  of  the  New  York 
Clearing  House,  one  of  them  being  the  Assistant-Treas- 


THE   CLEARING-HOUSE  2OQ 

urer  of  the  United  States,  and  each  member  has  a  number, 
as  Bank  A.,  No.  i,  etc.  There  are  also  thirty-four  banks 
and  eleven  trust  companies  in  New  York,  nineteen 
banks  and  seven  trust  companies  in  Brooklyn,  and 
nine  banks  in  Jersey  City,  Hoboken  and  Staten  Island, 
not  members  of  the  clearing  house,  that  clear  through 
other  banks.  The  Union  Trust  Co.,  for  example,  makes 
an  arrangement  with  the  Bank  of  Commerce,  by  which 
all  checks  drawn  on  the  former  may  be  presented  at  the 
clearing  house  to  the  settling  clerk  of  the  latter,  and 
be  treated  by  the  latter  exactly  like  checks  drawn  on 
itself.  In  this  case  the  Bank  of  Commerce  is  responsible 
to  its  fellow-members  of  the  clearing  house  for  checks 
drawn  on  the  Union  Trust  Co.  in  the  same  way  as  for 
its  own  checks.  Accordingly  it  may  happen  that  any 
bank  may  go  to  the  clearing  house  with  checks  and 
drafts  drawn  on  one  hundred  and  forty  six  different  in- 
stitutions, which  it  has  received  the  previous  day  from 
its  depositors,  or  through  the  mail  from  its  correspond- 
ents elsewhere  " 

(or  which  it  has  received  from  other  banks  and 
Trust  Companies  for  clearing). 

"  In  order  to  expedite  the  work,  it  must  separate  these 
checks  into  not  more  than  sixty  six  packages,  one  for 
each  member  of  the  clearing  house  upon  which  it  holds 
any,  and  prepare  a  schedule,  on  a  sheet  of  paper,  showing 
the  amount  of  its  claim  on  each  bank.  It  must  also 
have  a  ticket  for  delivery  to  each,  showing  for  example, 
that  Bank  A.  has  a  total  claim  on  Bank  B.  for  so  much 
money.  It  must  also  come  to  the  clearing  house  with  a 
statement  showing  the  aggregate  of  all  its  claims  on  all 
the  banks.  This  is  its  claim  against  the  clearing  house 


2IO          CREDIT  AND   THE   CREDIT   SYSTEM 

for  that  day.  It  is  handed  to  the  manager  of  the  clear- 
ing house,  or  to  the  proof  clerk,  immediately  upon  enter- 
ing. All  these  things  must  be  done  before  the  operation 
of  clearing  begins. 

"  Each  bank  sends  two  clerks  to  the  clearing  house 
— a  delivery  clerk  and  a  settling  clerk.  There  are  three 
rows  of  seats  running  through  the  clearing  room  length- 
wise, one  in  the  centre  as  shown  in  the  illustration,1  and 
one  on  each  side  parallel  with  it.  The  settling  clerks 
occupy  these  seats.  .  .  .  The  delivery  clerks,  with 
their  packages  of  checks  in  separate  envelopes,  stand  in 
the  open  space  in  front  of  the  settling  clerks."  .  .  . 
"  The  movement  has  all  the  precision  of  a  military  drill. 
When  the  second  bell  sounds,  at  exactly  10  o'clock,  each 
delivery  clerk  takes  one  step  forward,  hands  the  proper 
package  to  the  settling  clerk  of  the  bank  next  to  him, 
drops  the  accompanying  ticket,  showing  the  amount,  into 
an  aperture  like  a  letter  box  and  places  before  this  settling 
clerk  his  schedule  on  which  the  latter  places  his  initials. 
This  is  an  acknowledgment  of  the  receipt  of  the  package, 
but  not  of  any  particular  sum.  Thus  the  procession 
moves  uninterruptedly  until  each  delivery  clerk  has  pre- 
sented to  each  settling  clerk  the  proper  package  and 
ticket.  Usually  this  part  of  the  operation  is  completed 
in  ten  minutes.  Meanwhile  the  proof  clerk,  who  occu- 
pies a  desk  near  the  manager,  has  entered  the  claims  of 
each  bank  under  the  head  '  Banks  Cr.,'  on  a  broad 
sheet  of  paper  shown  below. 

"  Inasmuch  as  the  amount  of  each  bank's  claim  against 
the  clearing  house  (entered  under  the  head  '  Banks  Cr.') 
is  the  sum  of  all  the  tickets  which  its  delivery  clerk 
has  pushed  into  the  letter  boxes  of  the  other  banks,  it 

1  The  illustration  referred  to,  and  given  by  Mr.  White,  is  omitted 
here. 


THE   CLEARING-HOUSE  211 

follows  that  all  the  tickets  of  all  the  banks  should  equal 
all  the  entries  under  that  head.  The  next  step  in  the 
operation  is  for  each  settling  clerk  to  arrange  the  amounts 
of  all  the  tickets  in  his  letter  box  in  a  column,  add  it  up 
and  send  the  amount  to  the  proof  clerk  which  he  tran- 
scribes and  arranges  according  to  the  bank's  number 
under  the  head  '  Banks  Dr.,'  so  that  the  debit  of  Bank 
A.  shall  be  on  the  same  line  with  its  credit.  Then  the 
difference  between  the  two  will  show  how  much  the  bank 
owes  the  clearing  house,  or  how  much  the  clearing  house 
owes  the  bank.  .  .  .  When  all  are  completed,  if  no 
error  has  been  made,  the  footings  of  the  credit  and  debit 
columns  must  be  exactly  equal,  and  the  footings  of  the 
two  other  columns,  which  show  the  differences,  must  be 
exactly  equal.  Then  these  differences  are  read  off  slowly 
and  in  a  distinct  tone  of  voice  by  the  manager  so  that 
each  settling  clerk  can  write  down  the  sum  that  his  bank 
has  to  pay  or  to  receive.  .  .  ." 

"  When  the  footings  have  been  made,  the  proof  sheet 
is  in  the  following  form: 

Banks.         Due  Clearing  Banks  Dr.  Banks  Cr.  Due  Banks. 

House. 

A.  .     .     $  1,260.81        $  10,521.21        $    9,260.40 

B.  .     .  55,662.16  71,850.39        $16,188.23 

C.  .     .  41,922.90  49,621.86  7,698.96 

D.  . 

E.  . 

F.  .     .  74,719.60  79,781.31  5,061.71 

G.  . 
X. 


41,922.90 

49,621.86 

9,651.85 

61,330.33 

51,678.48 

3,566.60 

56,397.00 

52,830.40 

74,719.60 

79,781.31 

5,073.14 

53,211.34 

48,138.20 

9.396.50 

60,059.11 

50,662.61 

$28,948.90   $413,823.65   $413,823.65   $28,948.90 

"  The  actual  amounts  are  much  larger  than  here  repre- 
sented. .  .  .  The  amount  of  the  balances,  /.  <?.,  of 
the  sum  to  be  paid  into  and  out  of  the  clearing  house  is 


212  CREDIT  AND   THE   CREDIT   SYSTEM 

usually  about  five  per  cent,  of  the  total  amount  of  checks 
passed  through  it.  ...  The  debtor  banks  must  pay 
what  they  owe  to  the  clearing  house  before  1.30  P.M., 
after  which  the  clearing  house  pays  the  same  money  to 
the  creditor  banks." 

Thus  by  the  operations  of  the  various  clearing- 
houses many  millions  of  indebtedness  are  paid  and 
discharged  every  day  by  the  payment  of  not  more, 
on  an  average,  than  five  per  cent,  of  the  whole  in- 
debtedness in  cash  or  money. 

The  effect  of  the  operations  through  the  clearing- 
house is  not  only  that  each  bank  uses  its  credits 
against  all  the  other  banks  to  pay  what  it  owes  to 
all  the  other  banks — that  is,  it  is  thereby  enabled  to 
set  off  all  the  claims  it  holds  against  all  the  other 
banks  against  the  claims  which  all  the  other  banks 
hold  against  it — but  also  that  all  the  customers  of  all 
the  banks  who  have  mutual  dealings  are  enabled  to 
set  off  their  mutual  claims  against  each  other,  in  the 
same  manner  as  if  all  the  customers  of  all  the  banks 
kept  their  accounts  with  one  bank  where  all  the 
debits  and  credits  would  appear  on  the  same  book, 
and  the  clearing — that  is,  the  various  set-offs — would 
appear  upon  that  book  by  the  debits  and  credits 
entered  in  each  customer's  account. 


PART  III 

SOME  GENERAL  TOPICS 

CHAPTER  I 
BIMETALLISM 

§  i.  AT  present  two  forms  of  bimetallism  are 
advocated : 

(1)  National  Bimetallism; 

(2)  International  Bimetallism. 

The  national  bimetallist  demands  the  free  and  un- 
limited coinage  of  both  silver  and  gold  by  the  United 
States  of  America,  at  the  present  ratio  of  16  to  i, 
without  waiting  for  the  aid  or  consent  of  any  other 
nation,  and  that  the  standard  silver  dollar  shall  be 
a  full  legal  tender,  equally  with  gold,  for  all  debts, 
public  and  private. 

The  international  bimetallist  favors  a  treaty  among 
several  of  the  principal  commercial  nations  of  the 
world  (number  of  nations  to  join  in  the  treaty  not 
fixed  but  left  indefinite),  providing  for  the  unlimited 
coinage,  by  all  the  nations  comprising  the  league,  of 
both  silver  and  gold  at  a  ratio  to  be  agreed  upon, 
and  that  both  silver  and  gold  shall  be  unlimited  legal 
tender. 

213 


214  SOME    GENERAL   TOPICS 

It  will  be  observed  that  the  main  principles  and 
conditions  of  both  forms  of  bimetallism  are  the  same. 
They  only  differ  upon  two  points,  which,  however 
important  they  may  be  in  their  practical  effects,  do 
not,  materially,  affect  the  principles  of  bimetallism. 
The  first  point  of  difference  is  that  the  national 
bimetallist  demands  that  the  United  States  of  Amer- 
ica go  it  alone,  while  the  international  says  we  can 
only  do  it  in  conjunction  with  some  other  nations, 
but  does  not  commit  himself  upon  the  number  of 
nations  necessary  to  join  in  the  treaty.  The  other 
point  of  difference  is  the  ratio.  The  national  bi- 
metallist insists  on  the  present  ratio  of  16  to  i,  while 
the  international  commits  himself  to  no  ratio,  but 
proposes  to  leave  that  for  future  agreement.  Out- 
side of  these  two  points,  the  two  systems  make  the 
same  demands,  and  depend  upon  the  same  principles 
and  arguments.  They  both  urge  the  same  reasons 
for  support,  and  both  claim  the  same  resulting  bene- 
fits to  follow  the  introduction  of  the  system. 

§  2.  It  is  proposed  to  first  consider  the  principles 
and  claims  common  to  both  systems — National  Bi- 
metallism and  International  Bimetallism. 

There  are  three  conditions  which  are  absolutely 
and  essentially  requisite  to  create  and  maintain  bi- 
metallism. They  are  as  follows: 

(a)  The  unlimited  coinage  of  both  silver  and 
gold. 

(£)  The  fixing  of  a  ratio  between  silver  and  gold, 
as,  for  instance,  16  to  I. 

(c)  The  making  of  both  silver  and  gold  unlimited 
legal  tender. 


BIMETALLISM 


No  two  of  these  conditions  would  accomplish 
bimetallism,  in  the  sense  in  which  that  term  is  now 
used. 

Unlimited  coinage  and  a  fixed  ratio  would  not 
accomplish  it,  because  although  there  might  be  no 
limit  to  the  coinage,  and  the  ratio  might  be  fixed 
between  the  two  metals,  still,  the  two  metals  might 
not  pass  concurrently,  for  the  reason  that  creditors 
might  refuse  to  accept  either  one  or  the  other  in 
payment,  and  the  owner  of  commodities  might  re- 
fuse to  sell  his  commodities  in  exchange  for  either 
one  or  the  other  of  the  metals. 

Unlimited  coinage  of,  and  making,  both  metals  a 
legal  tender,  will  not  effect  bimetallism,  because, 
although  the  coinage  is  unlimited  and  both  metals 
are  a  legal  tender  in  payment  of  a  debt,  yet  each 
metal  would  then  only  pass  in  circulation  at  its 
market  or  exchangeable  value,  and  a  gold  dollar 
might  be  worth  more,  and  might  purchase  more 
than  a  silver  dollar  would  —  that  is,  the  purchasing 
power  of  a  gold  dollar  might  be  greater  than  that  of 
a  silver  dollar. 

The  fixing  of  a  ratio  between  the  two  metals  and 
making  both  a  legal  tender  will  not  accomplish  bi- 
metallism, for  with  the  limited  coinage  of  one  of  the 
metals,  the  value  of  the  coin  made  out  of  the  metal, 
the  coinage  of  which  is  limited,  will  be  different  from 
the  value  of  the  metal  itself.  It  will  have  an  ex- 
changeable value  according  to  the  legal  ratio,  but 
this  exchangeable  value  does  not  wholly  depend 
upon  the  value  of  the  metal  contained  in  the  coin, 
but  upon  some  extrinsic  element;  and  it  is  not  in- 


2l6  SOME   GENERAL  TOPICS 

fluenced  by  changes  in  the  value  of  the  metal 
itself. 

It  becomes,  then,  important  to  consider  what  part 
each  of  these  conditions  takes  in  the  play. 

(a)  Unlimited  coinage  of  the  metal  is  intended 
to  bring  in  the  whole  supply  of  the  metal,  as  possible 
and  available  supply  for  money,  and  it  makes  the 
value  of  the  coined  and  the  uncoined  metal  the 
same;  for  instance,  if  we  had  unlimited  coinage 
of  silver,  without  more,  the  silver  dollars  would  be 
worth  no  more  than  what  the  quantity  of  silver  in 
them  would  be  worth  at  its  market  value.  Now, 
as  has  already  been  explained, — our  silver  dollars  are 
kept  on  a  par  with  the  gold  dollar,  not  on  account 
of  the  value  of  the  silver  contained  in  the  dollar,  but 
on  account  of  the  promise  of  the  Government  to 
keep  them  at  par  with  gold,  and  hence  to  redeem 
them  with  gold.  With  unlimited  coinage  of  silver 
no  government  could  afford  to  guarantee  parity  be- 
tween gold  and  silver,  therefore  the  effect  of  free 
coinage  alone  would  be  to  make  a  silver  dollar  worth 
just  as  much  as  the  silver  contained  in  it  is  worth  in 
the  market.  The  bimetallist,  while  he  is  compelled 
to  insist  upon  the  unlimited  coinage  of  silver  in  order 
to  bring  in  the  whole  stock  or  supply  of  silver  as 
possible  money  supply,  yet,  he  is,  by  force  of  circum- 
stances, compelled  to  another  step  in  order  to  avoid 
the  natural  consequence  of  bringing  the  whole  of  the 
stock  of  silver  in  as  possible  money  supply,  to  wit: 
that  the  value  of  the  money  would  be  governed  en- 
tirely by  the  market  price  of  the  metal,  and  subject 
to  all  the  fluctuations  of  the  market.  He,  therefore. 


BIMETALLISM  2I/ 

insists  upon  establishing  a  ratio  between  the  two 
metals  by  law. 

(If)  The  object  of  fixing  a  ratio  between  silver  and 
gold  has  already  been  foreshadowed.  It  is  simply 
required  of  the  law  in  order  to  prevent  the  coin  and 
the  money  metal  from  being  influenced  by  the 
market,  or  by  supply  and  demand,  and  to  give  the 
coin  and  the  metal  a  factitious  purchasing  power, 
which  it  would  not  possess  if  its  value  and  price 
were  left  to  the  control  of  the  market  and  natural 
laws,  and  which  it  would  not  possess,  or  which  it 
would  possess  in  a  greater  degree,-  without  the  force 
and  compulsion  of  the  law.  By  fixing  a  ratio  it  is 
expected  to  bring  up  to,  and  hold  at,  the  legal  ratio 
the  value  and  market  price  of  the  whole  supply  of 
the  metal  which  tends  to  be,  or  to  become,  cheaper, 
and  to  bring  down  to,  and  hold  at,  the  legal  ratio 
the  value  and  the  market  price  of  the  whole  supply 
of  the  metal  which  is,  or  tends  to  become,  dearer. 
But,  still,  something  more  is  required  to  make  bi- 
metallism effective. 

(c)  Both  metals  must  be  made  a  legal  tender  in 
order  that  a  debtor  can  discharge  his  debt  by  the 
payment  of  either  metal.  It  is  then  assumed  that, 
since  a  debtor  can  pay  a  debt  with  either  one  or  the 
other  metal,  a  dealer  will  be  satisfied  to  sell  his 
wares  for  either  metal  indiscriminately  because  he 
can  pay  his  debts  with  either  metal.  But  this  result 
does  not  necessarily  follow,  because,  if  the  one  metal 
is  depreciated  in  value  with  reference  to  the  other, 
then,  as  to  all  future  transactions,  either  provision 
would  be  made  at  the  time  of  contracting  for  pay- 


2l8  SOME    GENERAL   TOPICS 

ment  in  the  dearer  metal,  or  else  the  price  would  be 
regulated  by  the  value  of  the  cheaper  metal. 

The  moderate  bimetallist  indignantly  repels  the 
insinuation  that  he  is  advocating  the  theory  that 
government  can  fix  the  price  or  value  of  anything, 
or  that  it  can  fix  the  price  of  silver  or  its  relative 
value  with  gold,  while  the  extreme  bimetallist  as- 
serts with  all  confidence  that  the  government  can 
fix  the  price  of  silver,  and  that  the  mint  not  only 
fixes  the  price  but  creates  a  demand  for  the  silver; 
and  he  triumphantly  asks,  who  will  sell  an  ounce  of 
silver  at  a  lower  commercial  price,  regulated  by  the 
law  of  supply  and  demand,  if  he  can  exchange  that 
ounce  of  silver  at  the  mint  for  $1.29  ?  However, 
both  bimetallists  agree  that  the  main  and  vital  prin- 
ciple of  bimetallism  is,  that  the  law  sets  in  motion 
an  economic  force  which  controls,  or  will  control, 
the  relative  values  of  silver  and  gold.  That  the  law, 
by  declaring  the  two  metals  indifferently  a  legal 
tender  in  payment  of  debts  at  a  certain  ratio,  power- 
fully creates  a  demand  for  the  cheaper  metal  and 
lessens  the  demand  for  the  dearer  metal;  that  if  at 
any  time  either  of  the  two  metals  becomes  less  valu- 
able than  the  legal  ratio,  every  debtor,  instinctively, 
will  seek  the  cheaper  coin  with  which  to  pay  his 
debt.  This  increases  the  demand  for  the  cheaper 
metal,  which  increased  demand  increases  the  price 
of  the  cheaper  metal,  while  the  decreased  demand 
for  the  dearer  metal  lowers  its  price,  thus  maintain- 
ing the  market  prices  of  the  metals  at  or  near  the 
legal  ratio.  This  is  claimed  to  be  the  great  funda- 
mental principle  of  bimetallism. 


BIMETALLISM  2IQ 

It  is  very  evident  that  the  law  merely  declaring 
both  silver  and  gold  a  legal  tender  at  a  certain  ratio 
will  not  of  itself  maintain  the  market  prices  of 
the  two  metals  and  hold  those  prices  at  a  parity  with 
the  legal  ratio ;  for  we  have  both  silver  and  gold  in 
use  as  money  in  this  country  at  the  ratio  of  16  to  I, 
and  France  and  the  other  States  of  the  Latin  Union 
are  still  using  both  metals  at  the  ratio  of  15^  to  i, 
and  Germany  is  still  using  silver  as  a  legal  tender. 
In  fact  all  the  countries  who,  before  the  much-con- 
demned demonetization  of  silver  in  1873,  were  so 
using  silver  and  gold,  are  still  using  both  as  legal 
tender  at  the  old  ratio,  and  still  the  market  price  of 
silver  has  not  been  sustained,  and  silver  and  gold  are 
very  far  from  being  at  a  parity  with  the  legal  ratios. 
Instead  of  the  commercial  ratio  being  16  to  I  or  15^ 
to  I,  it  is  more  than  32  to  I. 

If,  then,  bimetallism  will  hold  the  commercial 
ratio  up  to  the  legal  ratio,  it  must  be  on  account  of 
the  unlimited  coinage  of  both  metals;  but  how  can 
unlimited  coinage  create  a  demand  ?  It  cannot ;  and 
bimetallism  cannot  in  any  way  create  an  increased 
demand  for  the  one  and  a  decreased  demand  for  the 
other  of  the  metals,  except  that  one  of  the  metals 
be  overvalued  in  the  legal  ratio ;  that  is,  that  silver, 
for  instance,  is  rated  higher  in  the  legal  ratio  than  it 
is  in  the  commercial  ratio.  The  market  price  of 
one  of  the  metals  must  be  either  above  or  below 
the  ratio  or  price  fixed  by  law,  before  bimetal- 
lism can  begin  its  work,  in  which  case  the  debtor 
will  seek  the  cheaper  metal,  and  thus,  as  they  claim, 
create  a  demand  for  the  cheaper  metal  which  will 


220  SOME   GENERAL  TOPICS 

raise  its  price.  The  compensatory  action  or  econo- 
mic force  is  not  put  in  motion  by  unlimited  coinage 
unless  such  unlimited  coinage  reduces  or  raises  the 
commercial  or  market  price  of  one  of  the  metals  be- 
low or  above  the  legal  ratio.  It  cannot  do  so,  since 
the  very  object  and  purpose  of  the  legal  ratio  is  to 
prevent  the  market,  or  the  natural  law,  from  control- 
ling the  price  or  value  of  the  metal  under  unlimited 
coinage.  The  fixing  of  a  ratio  is,  therefore,  the 
vital  force  of  bimetallism,  and  in  this  respect  there 
is  no  difference  between  the  moderate  and  the  ex- 
treme bimetallist ;  both  equally  depend  upon,  and 
insist  upon,  the  law  fixing  the  ratio  between  the 
metals.  The  national  bimetallist  insists  upon  the 
ratio  being  fixed  at  16  to  I,  while  the  international 
bimetallist  does  not  commit  himself  to  any  particular 
ratio,  but  indicates  a  ratio  of  not  over  20  to  I,  and 
leans  decidedly  to  15^  to  I.  There  is  here,  again, 
no  difference  between  the  two  schools  of  bimetallism, 
at  least  not  in  principle.  If  they  differ  at  all,  it  is 
only  in  degree.  In  both  systems  the  mainstay  and 
the  principal  support  of  both  is  the  legal  ratio,  and 
under  both  systems  the  legal  ratio  is  expected  to 
hold  the  commercial  ratio  at  practically  par  with 
the  legal  ratio,  merely  because  it  is  the  ratio  estab- 
lished by  law.  While  it  is  true  that  the  legal  ratio 
cannot  alone  and  without  the  aid  of  the  other  two 
conditions — unlimited  coinage  and  legal  tender — ac- 
complish bimetallism,  yet,  the  two  latter  named  con- 
ditions are  mere  helpers  or  assistants  to  the  ratio. 
The  unlimited  coinage  brings  in  the  whole  stock  of 
silver  as  possible  and  available  money  supply  at  the 


BIMETALLISM  221 

legal  ratio,  and  the  legal  tender  compels  people  to 
accept  the  silver  money  at  the  legal  ratio. 

Men  speak  of  the  mint  price  of  silver  or  gold. 
The  mint,  however,  makes  or  fixes  no  price  on 
either.  To  say  that  it  does,  is  as  much  as  saying 
that  the  impression  of  a  stamp  upon  a  piece  of  the 
metal  fixes  the  price  of  the' metal,  and  that  because 
a  certain  number  of  grains  of  silver  constitute  a 
dollar,  therefore,  that  number  of  grains  of  silver  is 
worth  a  dollar.  But  what  is  a  silver  dollar  ?  Nothing 
more  than  a  given  number  of  grains  of  silver,  37 ij 
grains  of  silver,  no  more,  no  less.  Hence  if  a  man 
take  an  ounce  of  silver  to  the  mint  and  exchange  it 
for  coin,  or  rather  have  it  coined,  what  does  he  get  ? 
$1.29  in  the  form  of  money,  but  actually  and  as  a 
matter  of  fact,  he  gets  back  his  ounce  of  silver  with 
a  stamp  added  to  show  its  weight  and  fineness. 
Gold  remains  gold,  and  silver  remains  silver  at  the 
mint,  and  after  coinage  neither  is  changed.  If  a 
man  could  take  his  ounce  of  silver  and  exchange  it 
for  J^  of  an  ounce  of  gold,  that  would  be  fixing  some 
sort  of  relation  in  the  values  of  both  silver  and  gold 
commercially;  but  if  the  ounce  of  silver  were  only 
worth  in  the  market  the  ¥^  part  of  an  ounce  of  gold, 
no  holder  of  gold  would  be  foolish  enough  to  ex- 
change y^  of  an  ounce  of  his  gold  for  one  ounce  of 
silver,  merely  because  that  was  the  legal  ratio  be- 
tween the  two  metals.  Hence  the  mint  fixes  no 
price.  It  merely  returns  the  metal  stamped,  and 
the  person  who  takes  his  metal  to  the  mint  to  be 
coined  merely  gets  back  the  metal  he  took.  If  a 
person  had  one  hundred  gallons  of  refined  petroleum 


222  SOME    GENERAL   TOPICS 

in  bulk  in  a  tank,  and  were  to  employ  some  one  to 
run  the  petroleum  into  one-hundred-gallon  cans,  and 
then  have  the  inspector  certify  to  the  quantity  and 
quality  of  the  petroleum  in  each  can,  would  anyone 
say  that  the  one  hundred  cans  of  petroleum  is  the 
price  of  the  petroleum  which  had  been  in  the  tank  ? 
The  petroleum  in  the  cans  was,  and  remained,  the 
same  petroleum  which  it  was  in  the  tank.  Just  so 
with  metal  taken  to  the  mint  to  be  coined.  It  is 
there  separated,  segregated,  and  divided  up  into  a 
given  number  of  pieces  of  a  given  weight  and  re- 
turned to  the  owner.  The  owner  gets  gold  for  gold 
and  silver  for  silver,  and  there  is  no  such  thing  as  a 
mint  price. 

However,  the  expression,  "  mint  price  "  is  used 
in  another  sense ;  that  is,  the  legal  ratio  or  price  of 
gold  and  silver;  what  is  really  meant  is  that  legally 
a  certain  number  of  grains  of  silver  is,  in  the  cur- 
rency, worth  as  much  as  a  given  number  of  grains  of 
gold;  that  is,  in  law  the  gold  price  of  371^  grains 
of  silver  is  worth  as  much  or  is  equivalent  to  one 
gold  dollar,  and  this  brings  us  back  to  the  legal 
ratio. 

What  is  fixing  the  ratio  between  gold  and  silver  ? 

hThe  law  does  not  say  in  express  terms  that  the  ratio 
shall  be  16  of  silver  to  I  of  gold.  What  it  does  pro- 
vide is  that  a  piece  of  gold  containing  23.22  grains 
of  pure  gold  metal  shall  be  stamped  at  the  mint,  and 
it  christens  this  piece  of  gold  "one  dollar";  it 
further  provides  that  a  piece  of  silver  containing 
371 J  grains  of  pure  silver  metal  shall  also  be  stamped, 
and  it  also  christens  this  piece  of  silver  "  one  dollar." 


BIMETALLISM  223 

Now,  all  dollars  are,  in  law,  equal.  Legally  there 
is  no  distinction  made  between  a  gold  dollar  and  a 
silver  dollar.  If  the  law  had  christened  the  piece  of 
gold  "one  dollar, ' '  and  the  piece  of  silver  a  ' '  mark, 
or  a  "  franc,"  or  had  even  distinguished  it  from  the 
gold  dollar  by  naming  it  "  a  silver  dollar,"  it  would 
not  necessarily  have  followed  that  the  silver  dollar 
was  equal  in  law  to  the  gold  dollar.  It  is  the  giving 
of  the  piece  of  gold  and  the  piece  of  silver  the  same 
name,  "  one  dollar,"  which  makes  the  silver  dollar 
the  equal  in  law  of  the  gold  dollar,  and  which  fixes 
the  ratio  of  16  to  I  ;  the  23.22  grains  of  gold  in  the 
gold  dollar  being  almost  the  ^  in  weight  of  the 
3/i£  grains  of  silver  in  the  gold  dollar.  What 
the  law  does,  then,  is  to  fix  the  relative  values  be- 
tween silver  and  gold — the  relative  values  of  two 
different  commodities.  In  other  words,  the  law 
fixes  a  gold  price  on  silver  and  a  silver  price  on  gold. 
What  is  this  but  the  Government  fixing  the  prices 
of  these  two  commodities  ?  The  moderate  bimetal- 
list  may  deny  ever  so  stoutly  that,  under  bimetal- 
lism, the  Government  fixes  the  relative  prices  of 
gold  and  silver;  they  may  talk  to  the  end  of  time 
about  economic  force  and  compensatory  action,  but 
they  never  can  alter  the  plain  and  palpable  fact  that 
it  is  the  Government's  fiat,  the  mandate  of  the  law, 
fixing  the  relative  prices  of  gold  and  silver,  upon 
which  they  rely  to  hold  the  market  prices  of  these 
two  metals  up  to  the  legal  ratio.  It  is  their  demand 
that  the  Government  fix  this  ratio  or  these  prices, 
and,  unless  they  expect  that  the  law  thus  fixing  the 
ratio  between  the  two  metals  will  hold  the  market 


224  SOME    GENERAL  TOPICS 

value  of  them  up  to  the  legal  value,  then,  they  are 
simply  contemplating  a  gigantic  scheme  of  repudia- 
tion, for,  of  course,  a  debtor  will  always  pay  in  the 
cheaper  metal.  They  therefore  not  only  demand 
that  the  Government  fix  the  ratio,  but  they  rely 
and  depend  wholly  upon  this  fixed  ratio  to  sustain 
the  market  prices  of  the  two  metals,  and  to  sustain 
bimetallism  itself.  They  do,  then,  insist  upon  the 
Government  fixing  the  relative  prices  of  gold  and 
silver  just  as  much  as  the  most  extreme  bimetallists 
do,  and,  in  this  respect,  there  is  no  difference  be- 
tween them,  except  that  the  extremist  does  not  en- 
deavor to  disguise  his  demand  and  his  theory  under 
elegant  phrases  such  as  economic  force,  compensa- 
tory action,  and  the  like.  The  extremist  comes  out 
plainly  and  demands  that  the  Government  fix  the 
prices  of  the  two  metals ;  that  it  can  do  so,  has  done 
so,  and  that  this  Government  action  will  hold  the 
market  prices  up  to  the  legal  ratio.  The  moderate 
bimetallist  makes,  as  we  have  seen,  the  same  demand 
and  for  precisely  the  same  reasons,  and  with  the  ex- 
pectation of  attaining  the  same  result.  Both  schools 
of  bimetallists  demand  that  the  Government  shall  by 
law  rate  silver  much  higher  as  compared  with  gold, 
than  it  is  rated  by  the  commercial  ratio;  in  other 
words,  that  the  law  shall  raise  the  price  of  silver  re- 
latively with  gold  much  higher  than  the  market 
price;  and  both  confidently  assert  that  this  legal 
rating  will  have  the  effect  of  making  the  market 
price  conform  to  it.  The  moderate  bimetallist, 
whilst  all  the  time  protesting  that  he  is  not  expect- 
ing the  Government  to  fix  the  price  or  value  of 


BIMETALLISM 


silver  and  expects  nothing  of  the  kind,  yet  he  is  con- 
stantly demanding  that  the  Government  do  fix  this 
price  ;  and  then  he  says  that  the  market  price  of  the 
metals  will  be  brought  to  conform  to  the  legal  ratio, 
not  because  the  fixing  of  the  price  or  ratio  has  any- 
thing at  all  to  do  with  this  expected  result,  but  on 
account  of  an  economic  force  which  the  Government 
sets  in  motion.  One  would  suppose  from  the  man- 
ner in  which  the  bimetallist  presents  this  point,  that 
there  is  somewhere  in  the  world  an  economic  force 
especially  created  and  designed  by  nature  to  main- 
tain the  ratio  of  16  or  15^-  of  silver  to  I  of  gold,  but 
which  has  been,  since  1873,  kept  in  a  state  of  re- 
straint or  imprisonment,  and  which,  if  it  were  only 
released,  would,  forthwith,  restore  and  maintain  the 
old  legal  ratios  of  16  or  15^  to  i,  between  silver  and 
gold.  Now,  all  this  talk  about  an  economic  force 
is  nothing  more  than  an  evasive  plea.  What  does 
the  bimetallist  demand  ?  Does  he  not  demand  that 
the  law  fix  a  ratio  between  silver  and  gold,  and  does 
he  not  demand  that  in  this  ratio  silver  shall  be  rated 
at  a  much  higher  price  than  it  is  in  the  market  ? 
The  first  thing,  then,  that  the  bimetallist  asks  is 
that  the  law  shall  violate  the  natural  and  economic 
law  by  which  the  relative  prices  or  values  of  com- 
modities are  fixed  ;  and  he  insists  that  this  action  by 
the  statute  law  will  overcome  the  natural,  or  econo- 
mic law  under  which  the  gold  price  of  silver  has 
become  so  depressed  ;  and  then  he  complacently  ex- 
plains that  it  will  not  be  the  effect  of  the  fixed  legal 
ratio  which  will  cause  this  rise  in  the  value  of  silver, 
but  an  economic  force  which  the  Government  has 


226  SOME   GENERAL  TOPICS 

released  from  imprisonment.  This  emancipated 
economic  force  is  an  increased  demand  for  the 
cheaper  metal  which  will  raise  its  price,  and  a  de- 
creased demand  for  the  dearer  metal  which  will 
lower  its  price  until  both  meet  at  the  ratio  estab- 
lished by  law.  Gold  is  to  be  dragged  down,  and 
silver  to  be  dragged  up,  in  price,  until  they  meet  at 
the  fixed  ratio,  but  when  they  have  so  met  the  price 
and  purchasing  power  of  gold  will  have  been  vastly 
diminished,  unsettling  all  prices  and  business  engage- 
ments and  spreading  universal  ruin,  loss,  and  suffer- 
ing, all  over  the  commercial  world.  And  yet  all  this 
is  accomplished  not  by  the  law  fixing  a  ratio  between 
silver  and  gold,  but  by  an  economic  force.  Econo- 
mic force  ?  economic  fiddlesticks!  If  anything  will 
accomplish  it,  it  will  be  the  force  of  the  statute  law, 
in  defiance  of  the  natural  or  economic  law.  Suppose 
the  law  did  not  fix  the  ratio,  and  there  were  still  un- 
limited coinage  of  both  silver  and  gold,  and  both 
were  unlimited  legal  tender;  that  would  bring  in  the 
vvhole  supply  of  silver  as  possible  money  supply, 
just  as  gold  now  is.  Silver  would  then  circulate,  as 
gold  circulates,  but  it  would  have  to  circulate  at  its 
commercial  exchange  value,  just  as  gold  now  does. 
What  would  the  economic  force  do  in  this  case  ? 
The  answer  is  easily  given.  It  would  allow  each 
metal  to  go  its  way  in  commerce  on  its  own  merits, 
just  as  it  allows  other  commodities  to  do.  Clearly, 
that  is  not  the  kind  of  an  economic  force  the  bimetal- 
list  is  seeking  for.  What  he  wants  is  a  law  fixing 
the  relative  values  of  silver  and  gold,  and  then  he 
wants  an  economic  force  that  will  force  the  relative 


BIMETALLISM  22/ 

market  values  of  these  two  commodities  to  conform 
to  the  arbitrary  legal  ratio.  He  wants  to  drag  the 
value  of  silver  up,  and  drag  the  value  of  gold  down, 
and  thus  accomplish  a  depreciation  of  the  standard 
of  value.  Happily  the  law  is  impotent;  it  cannot 
fix  the  relative  values  of  the  two  commodities  silver 
and  gold,  any  more  than  it  can  fix  the  relative 
values  of  any  other  two  commodities;  and  there  is 
no  economic  force  which  can  compel  the  relative 
commercial  values  of  any  two  commodities  to  con- 
form to  a  ratio,  established  by  law,  between  them. 

§  3.  In  addition  to  the  conditions  essential  for 
the  creation  of  bimetallism,  there  are  several  other 
conditions  which  are  necessary  to  secure  its  success- 
ful operation.  Although  the  world  was  bimetallic, 
before  the  present  century,  yet  the  bimetallist  asserts 
that  the  system  never  had  a  fair  trial  until  about  the 
beginning  of  this  century  in  France.  It  is  asserted 
that  bimetallism  did  not  have  a  fair  show  in  England 
prior  to  1696,  because  the  coin  in  use  was  so  debased, 
and  because  the  fractional  silver  money  was,  in  fact, 
as  proportionately  valuable  as  the  full  silver  money. 
Hence  England  was  constantly  losing  either  one  or 
the  other  of  her  money  metals.  It  is  further  asserted 
that  while  the  recoinage  in  England  in  1696  removed 
what  had  been  the  chief  obstacle  to  a  fair  trial  of 
national  bimetallism,  yet  gold  was  so  distinctly  over- 
valued in  the  circulation,  that  the  consequence  was 
that  all  her  silver  was  driven  out  of  circulation,  and 
bimetallism  had  no  opportunity  of  demonstrating 
just  what  it  was  capable  of  doing.  The  economic 
force  never  was  let  loose  in  England. 


228  SOME   GENERAL  TOPICS 

It  is  further  asserted  that  the  experience  of  France 
down  to  the  year  1785  was  the  same  as  that  in  Eng- 
land, except  that  in  France  it  was  the  silver  that  was 
overrated,  and  consequently  she  lost  her  gold, — that 
for  these  reasons  bimetallism  was  unable  to  accom- 
plish its  mission  in  France.  These  adverse  causes 
kept  the  economic  force  in  subjection  in  England 
and  France. 

Confessedly,  bimetallism  was  a  signal  failure  in 
the  United  States,  but  the  bimetallist  claims  that  it 
was  such  a  failure  because,  first,  up  to  1834,  the 
country  had  so  little  of  the  precious  metals  in  use  as 
money,  and  had  so  little  commerce  that  bimetallism 
had  nothing  to  work  on;  that  there  must  be  con- 
siderable quantities  of  both  gold  and  silver  money 
in  a  country  in  order  to  give  bimetallism  something 
to  create  a  demand  upon,  or  to  decrease  the  de- 
mand of;  and,  second,  that  up  to  1834  silver  was  so 
highly  overrated  that  it  drove  all  the  gold  out  of 
circulation;  and,  third,  that  by  the  act  of  1834  gold 
was  overrated,  and  therefore  all  the  silver  was  driven 
out  of  circulation.  For  these  reasons,  it  is  asserted 
bimetallism  never  had  a  fair  trial  in  the  United 
States,  and  the  economic  force  was  thus  held  in 
restraint. 

Again,  bimetallism,  even  though  it  be  fairly  and 
successfully  launched  into  full  operation  can  only 
continue  as  long  as  there  remains  in  circulation  an 
appreciable  amount  of  that  metal  which  at  the  time 
tends  to  become  dearer,  and  which  can  be  freely  ex- 
changed for  the  cheaper  metal  at  the  legal  ratio. 
After  the  dearer  metal  has  become  so  scarce  in  the 


BIMETALLISM  229 

circulation  that  it  will  not  be  freely  exchanged  for 
the  cheaper  metal  at  the  legal  ratio,  then  bimet- 
allism fades,  withers,  and  dies,  and  the  country 
becomes  monometallic,  having  the  cheaper  metal 
money  as  its  circulating  medium,  and  as  its  measure 
of  values.  It  will  thus  be  seen  that  bimetallism  is 
an  exceedingly  delicate,  sensitive,  and  short-lived 
plant.  It  requires  certain  definite  proportions  of 
two  metals,  that  is,  16  of  silver  to  i  of  gold,  and  a 
plentiful  and  constant  supply  of  both  to  sustain  it, 
and  the  failure  of  the  supply  of  either  will  cause  it 
to  die. 

Again,  bimetallism  can  only  sustain  the  market 
values  of  silver  and  gold  at  the  legal  ratio  within, 
what  is  called  by  the  bimetallist,  reasonable  limits. 
The  efficiency  of  the  bimetallic  system  being  a 
question  of  proportion,  a  matter  of  degree,  and  as 
long  as  the  natural  or  commercial  causes  do  not  tend 
to  create  too  great  a  divergence  between  the  com- 
mercial ratio  between  silver  and  gold,  and  the  legal 
ratio,  bimetallism  can  sustain  the  ratios  at  or  near  an 
equality;  but  when,  on  account  of  natural  or  com- 
mercial causes, — such  as  an  extremely  great  addition 
to  the  supply  of  one  of  the  metals,  or  a  great  diminu- 
tion in  the  supply  of  one  of  the  metals — the  tendency 
is  to  too  great  a  divergence  between  the  commercial 
ratio  and  the  legal  ratio,  then  the  bimetallic  law 
can  no  longer  resist  the  change  in  the  commercial 
ratio,  and  consequently,  bimetallism  will  break 
down.  This  is  the  excuse  given  for  the  failure  of 
France  to  maintain  her  bimetallic  system  after  Ger- 
many demonetized  silver  in  1873.  This  threatened 


230  SOME   GENERAL  TOPICS 

decline  added  to  the  actual  decline,  which  had  then 
actually  taken  place,  caused  the  downfall  of  the 
French  bimetallic  system.  And  still  again,  it  is  not 
pretended  that  bimetallism  can  or  does  prevent  what 
they  call  slight  differences  or  variations  in  the  com- 
mercial and  legal  ratios;  such  slight  variations  as 
two  to  three  or  four  per  cent,  between  the  commer- 
cial and  legal  ratios  cannot  be  prevented,  but  they 
are  immaterial,  as  the  bimetallist  alleges.  The  limit 
of  the  effective  operation  of  bimetallism  is  between 
these  so-called  slight  variations  and  the  so-called  too 
great  divergences ;  but  what  are  "  slight  variations  " 
and  what  are  "  too  great  divergences  "  are  left 
wholly  undefined  and  indefinite.  If  bimetallism  is 
to  be  of  any  good  at  all  this  limit  should  certainly 
be  defined.  It  is  very  unsatisfactory  to  be  left  with 
the  explanation  that  bimetallism  cannot  restrain 
what  they  call  the  slight  variations  in  the  commer- 
cial ratio  of  the  two  metals,  nor  can  it  restrain  too 
great  divergences  or  variations  in  the  commercial 
ratio,  but  it  can  restrain  any  divergence  between 
one  that  is  slight  and  one  which  is  not  too  great. 
What  is  slight,  and  what  is  too  great  ?  This  looks 
very  much  like  a  confession  on  the  part  of  the  bi- 
metallist that  bimetallism  does  not  control  or  restrain 
the  commercial  relative  values  of  silver  and  gold  at 
all,  and  it  most  certainly  does  not.  If  bimetallism 
is  at  all  effective,  how  could  there  be  any  great 
divergences  between  the  market  and  the  legal  ratio 
between  the  two  metals  ?  How  could  any  such 
divergences  occur  while  the  economic  force  con- 
trolled the  relative  values  of  the  two  metals  ?  If 


BIMETALLISM  231 

bimetallism  cannot  control  slight  or  great  diver- 
gences, then  it  cannot  control  any  at  all.  But  to 
return  to  the  auxiliary  conditions  necessary  for  the 
successful  operation  of  bimetallism.  We  have  found 
that  these  auxiliary  conditions  are: 

(a)  The  coin  in  use  must  not  be  debased. 

(b)  The  fractional  silver  money  must  not  contain 
as  much  silver  proportionately  as  a  silver  dollar. 

(c)  Neither  metal  must  be  overvalued  or  under- 
valued in  the  legal  ratio;  that  is,  the  legal  ratio, 
when  fixed,  must  conform  to  the  commercial  ratio 
as  existing  at  the  time  of  the  creation  of  the  legal 
ratio. 

(d)  The  country  where  bimetallism  is  to  operate 
must  be  wealthy,  and  have  a  great  deal  of  commerce. 

(e)  That  there  must  be  considerable  quantities  of 
both  gold  and  silver  money  in  the  country. 

(/)  With  all  these  conditions  favorable,  bimetal- 
lism will  continue  its  beneficent  operations  as  long  as 
any  appreciable  quantity  of  the  metal,  which  at  the 
time  tends  to  become  dearer,  remains  in  circulation 
in  the  country,  and  can  be  freely  exchanged  for  the 
cheaper  metal  at  the  legal  ratio,  and  no  longer. 

(g)  With  all  the  foregoing  conditions  favorable, 
bimetallism  does  not  pretend  to  be  able  to  restrain 
slight  variations  (such  as  two  to  four  per  cent.)  be- 
tween the  legal  and  the  commercial  ratios  of  silver 
and  gold ;  nor  does  it  assume  to  be  able  to  prevent 
any  divergences  between  the  two  ratios,  caused  by 
natural  or  commercial  causes  which  are  too  great  for 
the  bimetallic  system  to  restrain,  but  that  it  can  re- 
strain any  variations,  between  the  two  ratios,  within 


232  SOME   GENERAL  TOPICS 

the  limits,  bounded  on  the  one  side  by  the  aforesaid 
slight  variations  and  the  aforesaid  divergences  which 
are  too  great  to  be  restrained  by  the  bimetallic  law 
on  the  other  side.  The  bimetallist,  who  cannot  at 
all  times  readily  find  an  excuse  for  the  failure  of  his 
system,  must  certainly  be  in  extremely  hard  luck. 
Manifestly,  bimetallism  in  the  form  as  advocated  at 
present,  must  fail  according  to  the  above  conditions, 
which  the  bimetallist  himself  has  laid  down  as  essen- 
tial to  the  successful  operation  of  the  system ;  be- 
cause, as  at  present  proposed,  silver  is  to  be  largely 
overvalued  in  the  legal  ratio  ;  that  is,  the  value  fixed 
by  law  is  to  be  greater  than  the  existing  commercial 
value.  It  was  this  overvaluation  of  one  of  the  metals 
(but  only  in  a  lesser  degree)  which  they  assert  was 
the  cause  of  the  failure  of  bimetallism  in  England, 
in  France  prior  to  1785,  and  in  the  United  States: 
and  yet  the  bimetallist,  with  these  admitted  failures 
staring  him  in  the  face,  seriously  proposes  to  again 
make  the  attempt  to  successfully  operate  bimetallism 
by  overrating,  or  overvaluing  silver,  over  thirty  or 
forty  times  greater  than  either  of  the  metals  ever 
was  overvalued  by  any  law  heretofore. 

§  4.  If  government  can  by  law  fix  the  relative 
values  or  prices  of  two  commodities, — gold  and 
silver — then  it  can  fix  the  relative  values  of  any 
other  two  commodities.  It  can  fix  the  price  in  gold 
of  each  of  all  the  other  commodities ;  in  other  words, 
government  can  fix  and  maintain  the  prices  of  all 
commodities.  If  any  principle  has  ever  been  settled, 
it  is  that  government  or  the  law  cannot  fix  the  prices 
of  any  article  or  commodity,  that  these  prices  must 


BIMETALLISM  233 

be  determined  by  the  natural  laws,  supply,  demand, 
the  higgling  of  the  market,  etc.  Bimetallists  admit 
this,  but  insist  that  government  can  put  forces  in 
motion  which  will  influence  prices  against  the  natural 
laws.  They  say,  that  under  bimetallism,  the  bi- 
metallic increased  demand  for  the  cheaper  metal,  or 
the  metal  which  tends  to  fall  in  value,  for  use  as 
money  will  increase  its  value,  and  a  corresponding 
decreased  demand  for  the  dearer  metal,  for  use  as 
money,  will  decrease  its  value.  Now,  it  is  evident 
that  bimetallism  cannot  prevent,  nor  is  it  intended 
to  prevent,  the  operation  of  natural  or  commercial 
causes  on  the  relative  values  of  silver  and  gold,  in 
the  first  instance;  for  the  bimetallic  demand  is  only 
created  after  the  market  value  of  either  the  one  or 
the  other  of  the  metals  has  fallen  or  raised.  The 
theory  is,  that  after  this  fall  or  rise  in  the  commercial 
value  has  taken  place,  then,  by  virtue  of  the  bi- 
metallic law  an  increased  demand  for  monetary  pur- 
poses is  created  for  the  cheaper  metal, which  increases 
its  commercial  value,  and  the  increased  demand  for 
the  cheaper  metal  effects  a  corresponding  decrease 
in  the  demand  for  the  dearer  metal,  thus  decreasing 
its  commercial  value,  and  by  these  means  the  com- 
mercial ratio  is  restored  to  a  parity  with  the  legal 
ratio.  In  other  words,  the  theory  is,  that  the  law 
can  so  manipulate  the  demand  for  a  commodity  that 
it  will  compel  the  commercial  price  of  that  commo- 
dity to  conform  to  a  price  fixed  by  the  law,  that  the 
law  can  cause  the  demand  for  silver  and  gold,  for 
monetary  uses,  to  be  so  manipulated  that  it  will 
compel  the  market  prices  of  all  of  both  metals  in 


234  SOME   GENERAL  TOPICS 

existence  to  conform  to  prices  fixed  by  the  law. 
The  law  may  manipulate  or  manufacture  a  demand 
for  a  commodity,  and,  possibly,  by  so  doing  may 
increase  or  diminish  its  price,  but  it  never  did  and  it 
never  can  fix  that  price,  and  compel  the  people  either 
to  give  or  accept  that  price  for  the  commodity. 
Merely  influencing  the  prices  by  increasing  or  de- 
creasing the  demand  is  one  thing  which  it  is  possible 
to  do;  but  to  influence  the  prices  by  an  increasing 
or  decreasing  demand  and  to  compel  these  prices  to 
conform  to,  or  agree  with,  the  arbitrary  prices  fixed 
by  the  law  is  quite  another  thing,  and  it  cannot  be 
done.  It  cannot  be  done  because,  stripped  of  all  its 
fine  phrases,  it  amounts  to  nothing  more  than  the 
law  fixing  the  prices  of  silver  and  gold.  Deny  it, 
conceal  or  disguise  it,  sugar  coat  it  as  much  as  you 
please,  it  comes  to  this  at  last.  But  the  bimetallist 
says  that  this  not  only  can  be  done,  but  actually  has 
been  done  in  one  notable  instance,  in  France  from 
1785  to  1873.  The  bimetallist  always  produces  this 
one  instance  in  the  monetary  history  of  France,  with 
a  grand  flourish  of  adjectives,  as  infallible,  incontro- 
vertible, etc. ,  proof  of  the  correctness  of  their  theory, 
and  they  solemnly  declare  that  no  one,  whose  opinion 
is  worth  considering,  ever  questioned  it.  Whether 
my  opinion  be  worth  anything  or  not,  I  do  question 
the  theory,  and  I  assert  that  during  the  period 
named  the  market  ratio  between  silver  and  gold 
was  not  kept  at  a  parity  with  the  legal  ratio,  or 
even  approximately  so,  for  any  practical  or  monetary 
purposes;  and  that  the  market  ratio  was  not,  during 
this  period,  restrained  from  greater  divergences  from 


BIMETALLISM  23$ 

the  legal  ratio  fixed  by  the  laws  of  France,  by  the 
bimetallic  system  then  in  force  in  that  country.  It 
is  strange  that  men  should  construct  a  principle  or  a 
theory  out  of  one  instance,  which  may,  after  all,  be 
a  mere  coincidence.  One  instance  is  not  sufficient 
upon  which  to  construct  a  theory.  After  all,  not- 
withstanding all  his  strong  and  emphatic  assertions, 
the  bimetallist  only  assumes  that  this  alleged  ap- 
proximation of  the  market  to  the  legal  ratio  was 
caused  by  the  action  of  the  bimetallic  law  fixing  the 
ratio  of  silver  to  gold  at  15^-  to  I.  His  whole  argu- 
ment is  nothing  more  than  mere  assumption.  He 
finds  a  certain  effect  which  could  have  been  caused  by 
perfectly  natural  and  commercial  causes;  instead  of 
attributing  the  effect  to  the  natural  causes,  he  as- 
sumes that  it  .was  caused  by  artificial  causes,  in 
defiance  of  the  natural  causes,  and  while  doing  so  he 
admits  that  the  artificial  causes  failed  in  every  other 
instance.  But  let  us  see  about  France. 

In  1785,  the  ratio  of  15^  of  silver  to  I  of  gold  was 
established  in  France.  France  had  been  bimetallic 
before  that,  but  the  bimetallist  alleges  that  it  failed 
for  the  reasons  stated  in  the  preceding  section. 

During  the  period  1501-1600  the  ratio  ranged  from 
10.75  to  n.8o,  a  difference  of  1.05  points,  or  about 
83%  per  cent,  in  100  years.  1601-1680,  a  period  of  80 
years,  it  ranged  from  12.25  to  15.00,  a  difference  of 
2.75  points,  or  about  22j  per  cent.  1687-1785,  a 
period  of  98  years,  it  ranged  from  14.14  to  15.52,  a 
difference  of  1.38  points,  or  about  9T8¥  per  cent. 
1785-1803,  the  first  period  of  the  legal  ratio  of  15^ 
to  i,  the  ratio  ranged  from  14.65  to  15.68,  a  differ- 


236  SOME   GENERAL  TOPICS 

ence  of  1.03  points,  or  over  7  per  cent,  in  18 
years. 

1803-1850,  it  ranged  from  15.04  to  16.25,  a  differ- 
ence of  1.21  points,  or  over  8  per  cent,  in  47 
years. 

1851-1866,  a  period  of  15  years,  it  ranged  from 
15.19  to  15.70,  a  difference  of  .51  points,  or  over  31 
per  cent.  1866-1873,  a  period  of  7  years,  it  ranged 
from  15.43  to  15.92,  a  difference  of  .49  points,  or 
over  3^  per  cent.  The  ratios  above  given  are  the 
commercial  ratios,  and  this  brief  statement  shows 
that  at  no  time  did  the  commercial  ratio  conform  to 
the  legal  ratio,  and  it  further  shows,  beyond  per- 
adventure,  that  the  proportionate  divergences  of  the 
commercial  from  the  legal  ratio  were  greater  after 
1785,  and  after  the  much-lauded  bimetallic  system 
of  France  at  the  ratio  of  I5j  to  I  went  into  effect, 
than  they  were  before  that  period.  Furthermore, 
the  greatest  divergence  was  during  the  period  of 
seven  years  from  1866  to  1873. 

From  1820  to  1847  g°ld  was  at  a  premium  in 
France,  reaching  at  times  as  high  as  3  per  cent. 
This  difference  is  altogether  too  great  to  be  called 
an  approximation  to  the  legal  ratio.  The  bimetallist 
is,  however,  equal  to  the  occasion,  and  confidently 
asserts  that  a  mere  trifle,  such  as  three  per  cent.,  is 
not  an  appreciable  difference,  but  is  really  an  ap- 
proximation of  the  commercial  to  the  legal  ratio; 
and  he  further  asserts  that  had  it  not  been  for  the 
bimetallic  law  the  difference  would  have  been  a 
great  deal  more ;  but,  as  it  was,  gold  was  always  to 
be  had  in  France  at  a  small  premium,  and,  therefore, 


BIMETALLISM  237 

that  gold  remained  in  circulation  all  the  time  side 
by  side  with  silver  at  the  legal  ratio.  Surely  they 
cannot  expect  any  reasonable  being  to  believe  that 
gold  remained  in  circulation  at  the  legal  ratio,  when 
it  was  all  the  time  at  a  premium.  Who  would  pay 
a  premium  of  3  per  cent,  above  the  legal  ratio  for 
gold  if  it  was  still  current  in  the  currency  at  the 
legal  ratio  ?  No  man  in  his  senses  would  discharge 
a  debt  of  $100  by  the  payment  of  $103,  if  he  could 
just  as  well  pay  it  with  $100.  Really,  the  bimetal- 
list  expects  altogether  too  much  if  he  expects  to  be 
believed  when  he  says  that  gold  was,  during  the 
whole  of  this  period,  in  circulation  in  France  at  the 
legal  ratio.  During  the  period  1850  to  1866,  silver 
was  at  a  premium  in  France.  Mr.  Francis  A. 
Walker,  in  his  work  entitled  Money,  Trade,  and  In- 
dustry, page  154,  says  that  during  this  time  silver 
was  at  a  premium  ranging  from  I  to  3  per  cent. 
Again,  on  page  185  of  the  same  work,  he  says: 

"  Gold  had  been  so  far  cheapened  by  the  discovery  of 
the  California  and  Australian  mines  that  it  formed  the 
greater  part  in  value  of  the  actual  circulating  medium  of 
the  bimetallic  countries,  and  was  at  a  discount  of  one, , 
two,  or  three  per  cent.,  in  comparison  with  silver;  but 
the  bimetallic  system  had  for  more  than  twenty  years 
kept  gold  from  being  so  far  cheapened  as  to  drive  all  the 
dearer  metal  out  of  the  countries  of  the  '  double  stand- 
ard.' Silver  was  still  to  be  had  in  indefinite  quantity 
in  the  Latin  States  at  a  slight  premium  over  15^  to  i; 
and  so  long  as  this  continued,  gold  and  silver  could  not 
break  apart,  and  come  to  be  governed  by  their  separate 
conditions  of  supply  and  demand." 


238  SOME   GENERAL  TOPICS 

Here  he  treats  a  discount  of  3  per  cent,  on  gold 
as  a  mere  trifling  difference,  and  consoles  us  with 
the  reflection  that  as  long  as  such  a  trifling  difference 
existed,  gold  and  silver  could  not  break  apart,  and 
be  governed  by  their  separate  conditions  of  supply 
and  demand.  Why  were  they  not  broken  apart  ? 
How  much  more  of  a  discount  than  3  per  cent,  would 
be  required  to  break  them  apart  ?  Any  differ- 
ence at  all  would  break  them  apart,  and  you  might 
as  well  say  that  a  discount  of  15,  20,  or  even  50 
per  cent,  would  not  break  them  apart,  as  to  say 
that  3  per  cent,  would  not;  and  each  metal  was 
subject  to,  and  must  have  been  governed  by,  its 
own  separate  condition  of  supply  and  demand.  If 
not,  what  caused  the  fall  in,  or  the  discount  on, 
gold  ?  Was  it  the  action  of  the  bimetallic  law  which 
caused  the  value  of  gold  to  fall  ?  Gold  and  silver 
were  driven  apart,  and  the  value  of  each  metal  was 
governed  by  its  own  conditions  of  supply  and  de- 
mand then,  as  it  always  was,  and  as  it  now  is. 
Whether  3  per  cent,  was  a  trifling  divergence  or  not 
it  was  sufficient  to  drive  the  dearer  metal  out  of  cir- 
culation, and  France  was,  in  fact,  silver  monometal- 
lic between  1820  and  1850,  and  gold  monometallic 
from  1850  to  1866.  Mr.  Walker  says  that  silver  was 
always  to  be  had  in  France  during  the  latter  period 
at  a  small  premium — not  over  3  per  cent. — and 
hence  that  silver  was  not  all  driven  out  of  France. 
It  is  not  a  question  of  the  dearer  metal  being  driven 
out  of  the  country,  but  whether  it  is  still  in  circula- 
tion as  money  for  exchange  at  its  legal  ratio  or  price. 
Gold  or  silver  is  always  to  be  had  in  any  of  the 


BIMETALLISM  239 

civilized  countries,  if  you  have  the  wherewithal  to 
pay  for  it.  During  our  late  civil  war  the  greenbacks 
fell  until  they  were  at  a  discount  of  65  per  cent.,  yet 
gold  was  always  to  be  had  in  this  country  on  pay- 
ment of  the  price ;  still,  that  was  never  taken  as  an 
evidence  that  gold  was  still  in  circulation  as  money 
in  this  country.  When  the  value  of  one  kind  of 
metal  either  becomes  greater  or  less  than  the  legal 
value,  then,  the  money  of  the  metal  which  is  the 
dearer  is  simply  withdrawn  from  the  circulation,  be- 
cause, as  already  explained,  the  holder  of  the  dearer 
metal  money  refuses  to  dispose  of  it  in  exchange  at 
its  legal  rating  or  price,  but  insists  on  exchanging 
it  only  at  its  commercial  value  or  price;  and  such 
withdrawal  of  the  one  kind  of  metal  from  the  circu- 
lation of  itself  makes  the  country  either  silver  mon- 
ometallic, or  gold  monometallic.  And  as  soon  as 
this  takes  place,  bimetallism  has  exhausted  itself, 
and  has  confessedly  no  longer  any  influence  in  con- 
trolling the  commercial  value  of  the  cheaper  metal 
which  is  retained  in  the  circulation,  or  of  the  dearer 
metal  which  has  been  driven  out  of  the  circulation, 
but  each  will  rise  or  fall  wholly  as  controlled  by  its 
own  conditions  of  supply  and  demand,  and  inde- 
pendent, and  irrespective,  of  the  bimetallic  law. 
Any  small  discount  or  premium  of  even  not  more 
than  J  per  cent,  is  sufficient  to  drive  the  dearer 
metal  out  of  circulation.  The  dearer  metal  refuses 
to  associate  on  terms  of  equality  with  its  depreciated 
companion,  and  this  will  make  the  country  mono- 
metallic. So  that  a  premium  or  discount  of  3  per 
cent.,  or  even  less,  is  not  such  a  light,  trifling  mat- 


240  SOME    GENERAL   TOPICS 

ter,  but  is  a  most  serious  thing,  because  it  deprives 
the  people  of  the  use  of  a  great  portion  of  its  money, 
and  of  the  best  portion  of  it,  leaving  them  only  the 
worst.  And  such  a  premium  or  discount  cannot  be 
regarded  as  a  trifling  thing  as  far  as  concerns  bi- 
metallism, for  it  drives  out  bimetallism  too,  and  it 
remains  out  the  same  as  if  it  never  had  existed, 
until  either  one  of  two  contingencies  happen,  if  they 
ever  do  happen, — that  is,  until  the  commercial  value 
of  the  cheaper  metal  which  is  retained  in  the  cir- 
culation rises  above  the  commercial  value  of  the 
dearer  metal,  either  by  a  rise  of  its  own  value  owing 
to  its  own  conditions  of  supply  and  demand,  or  by 
a  fall  in  the  commercial  value  of  the  dearer  metal 
which  had  been  driven  out  of  circulation  owing  to 
the  conditions  of  its  own  supply  and  demand.  This 
small  premium  was  just  as  effective  in  preventing 
silver  and  gold  from  passing  in  the  currency  as 
equivalents,  and  was  just  as  fatal  to  bimetallism 
itself,  as  if  it  had  been  15,  30,  or  even  50  per 
cent. 

The  fall  from  1866-1873  was  about  3  per  cent.  A 
fall  of  3  per  cent,  in  a  short  period  of  seven  years  is 
also  a  serious  matter,  and  it  was  so  serious  that  it 
induced  France  and  the  other  States  of  the  Latin 
Union  to  suspend  the  coinage  of  silver  on  private 
account,  and  they  did  this  to  avoid  becoming  silver 
monometallic,  for  gold  was  already  at  a  slight 
premium.  The  coinage  of  silver  on  private  account 
thus  ceased  because  silver  had  fallen,  and  silver  did 
not  fall  because  of  the  cessation  of  its  coinage  on 
private  account.  Bimetallism  had,  then,  failed  of 


X 


BIMETALLISM  241 

its  purpose  during  this  last  period  just  as  it  had,  in 
the  previous  periods.  I  therefore  repeat  that  bi- 
metallism did  not,  during  any,  or  all,  of  the  periods 
mentioned,  keep  the  commercial  ratio  of  silver  and 
gold  at  a  parity  with  the  legal  ratio,  nor  did  it  do  so 
even  approximately  for  any  practical  or  monetary 
purposes. 

Did  the  bimetallic  law  restrain  the  natural  law 
from  creating  greater  divergences  between  the 
commercial  and  the  legal  ratios  than  would  have 
occurred  in  the  absence  of  the  bimetallic  law  ?  Of 
course  no  one  knows  that  there  would  have  been 
greater  differences,  between  the  market  and  the 
legal  ratios,  than  there  were  if  there  had  been  no 
bimetallic  law  (bimetallism)  in  existence;  so  that, 
to  allege  that  these  differences  would  have  been 
greater  must  be  mere  surmise  and  speculation.  But 
surmise  answers  the  bimetallisms  purpose  just  as 
well  as  an  absolute  certainty,  and  so  he  asserts,  not 
as  a  matter  of  opinion,  or  of  belief,  but  as  a  certain 
and  absolute  fact,  that  there  would  have  been  greater 
differences  between  these  two  ratios  had  it  not  been 
for  the  restraint  of  the  bimetallic  law. 

We  have  seen  that  from  1501  to  1600,  a  period  of 
one  hundred  years,  there  was  but  a  fluctuation  of  1.05 
in  the  market  ratio;  that  during  the  period  1601- 
1680  there  was  a  fluctuation  of  2.75  in  the  eighty 
years,  or  about  22j  per  cent.  ;  that  during  the  period 
1687-1785, — almost  one  hundred  years — there  was 
a  fluctuation  of  1.38  in  the  market  ratio.  During  all 
these  periods  bimetallism  was  confessedly  a  failure, 
and  the  very  fact  of  the  great  difference  between  the 

16 


242  SOME   GENERAL  TOPICS 

fluctuations  of  the  two  periods  of  1501-1600,  and 
1687-1785,  and  the  period  of  1601-1680  shows  that 
no  bimetallic  law  did  or  could  have  controlled  the 
market  ratios,  but  that  these  values  were  controlled 
entirely  by  natural  and  commercial  causes.  If  it 
should  be  claimed  that  bimetallism  did  control  the 
market  values  during  these  periods,  then  I  ask  what 
does  the  influence  of  a  system  amount  to  which 
causes  a  fluctuation  of  22^-  per  cent.,  in  one  period 
of  eighty  years,  and  fluctuations  of  a  much  less 
than  one-half  of  that  percentage  during  each  of  two 
periods  of  one  hundred  years  before  and  after;  and 
can  these  fluctuations  be  regarded  so  slight  and  un- 
important as  to  enable  anyone  to  claim  that  during 
these  periods  the  bimetallic  law  held  the  market 
ratio  approximately  at  a  parity  with  the  legal  ratio  ? 
Surely  not.  If  22\  per  cent.,  or  even  10  per  cent., 
or  8  or  9  per  cent.,  is  regarded  as  slight  and  unim- 
portant, what  per  cent,  will  be  considered  enough  to 
be  important  ?  If  10  per  cent,  of  a  fluctuation  in 
the  market  price  of  a  commodity  is  holding  the 
price  of  that  commodity  approximately  the  same, 
then  where  does  approximation  end  ?  It  is  there- 
fore very  evident  that  the  bimetallic  law  had  no 
control  over  the  market  ratio  between  silver  and 
gold  during  the  periods  above  mentioned. 

During  the  period  1785-1803,  the  first  period  after 
the  introduction  of  the  famous  ratio  of  15^  to  I,  the 
change  was  over  7  per  cent.,  in  eighteen  years;  pro- 
portionately, this  would  have  been  at  the  rate  of 
over  38  per  cent,  for  a  period  of  one  hundred  years; 
over  four  tjm.es.  as  much  as  the  changes  which  took 


BIMETALLISM  243 

place  in  either  of  the  two  one-hundred-year  periods, 
1501-1600,  1687-1785. 

During  the  period  1803-1850,  there  was  a  change 
of  over  8  per  cent.,  during  a  period  of  forty-seven 
years,  which  would,  proportionately,  have  been  at 
the  rate  of  over  16  per  cent.,  for  a  period  of  one 
hundred  years;  almost  double  what  it  was  in  either 
of  the  one-hundred-year  periods,  1501-1600,  1687- 
1785. 

During  the  period  1850-1866  the  change  was  over 
31  per  cent,  in  15  years,  which  would,  proportion- 
ately, be  a  change  of  almost  20  per  cent,  for  a  period 
of  one  hundred  years;  considerably  over  twice  as 
much  as  the  change  in  either  of  the  one-hundred- 
year  periods,  1501-1600,  1687-1785. 

During  the  period  1866-1873,  the  change  was 
over  3T1TF  per  cent,  in  seven  years;  proportionately, 
this  would  have  been  a  change  of  over  44  per  cent, 
in  a  period  of  one  hundred  years;  about  five  times 
greater  than  the  changes  which  took  place  in  either 
of  the  one-hundred-year  periods,  1501-1600,  1687- 
1785. 

These  figures  show  conclusively  that  the  commer- 
cial ratio  of  silver  to  gold  was  not  as  steady  since  the 
adoption  of  the  famous  ratio  of  15^  to  i,  as  it  was 
before.  It  was  held  steadier  before  the  legal  ratio 
of  I5j  to  I  was  fixed  than  it  ever  was  since,  conse- 
quently, it  follows,  naturally,  that  the  bimetallic  law 
with  its  ratio  of  15^  to  I,  did  not  hold  the  commer- 
cial ratio  up  to  the  legal  ratio  during  the  periods 
1785-1873  or  1803-1873.  The  commercial  ratio 
was  not  as  steady  after  1785,  or  1803,  as  it  was 


244  SOME   GENERAL   TOPICS 

before  when,  confessedly,  bimetallism  was  a  fail- 
ure, and  hence  the  commercial  ratio  must  have 
been  at  all  times  governed  by  the  separate  con- 
ditions of  supply  and  demand  of  each  metal.  We 
are,  then,  forced  to  one  of  two  conclusions — either 
the  bimetallic  law  since  1785  did  not  control  the 
commercial  ratio  between  silver  and  gold,  but  left 
it  to  be  controlled  wholly  by  the  separate  conditions 
of  the  supply  and  demand  of  each  metal,  or,  if  the 
bimetallic  law  did,  during  that  period  control  the 
commercial  ratio,  then  it  is  not  as  satisfactory  a 
force  with  which  to  control  the  relative  values  of 
silver  and  gold  as  the  natural  law  is,  for  the  natural 
law  held  it  steadier  in  the  prior  periods  than  the  bi- 
metallic law  did  in  the  subsequent  periods.  How- 
ever, the  bimetallist  is  liable  to  change  his  position, 
and,  notwithstanding  the  fact  that  he  has  so  thor- 
oughly committed  himself  upon  the  question  of 
bimetallism  not  having  had  a  fair  trial  before  the 
adoption  of  the  French  legal  ratio  of  15^  to  I,  and 
that,  consequently,  it  could  not  exert  its  influence, 
still,  he  may  claim  that  France  was  bimetallic  prior 
to  1785,  and  that  bimetallism  did,  actually,  hold  the 
market  ratio  steady  during  those  periods  as  well  as 
during  the  subsequent  periods.  Be  it  so,  then,  can 
a  market  ratio  which  varies  at  the  rate  of  9  per  cent, 
in  one  period  of  one  hundred  years,  at  the  rate  of 
22^  per  cent,  in  a  period  of  eighty  years,  10  per 
cent,  in  another  period  of  one  hundred  years,  at  an- 
other time  at  the  rate  of  38  per  cent,  per  one  hundred 
years,  at  another  time  at  the  rate  of  16  per  cent,  per 
one  hundred  years,  at  another  time  at  the  rate  of 


BIMETALLISM  245 

almost  20  per  cent,  per  one  hundred  years,  and  at  an- 
other time  at  the  rate  of  over  44  per  cent,  per  one  hun- 
dred years — be  said  to  be  steady  ?  Can  it  be  said  to 
have  kept  so  steady  as  to  lead  to  the  "infallible  infer- 
ence "  that  some  cause — the  bimetallic  law — had  re- 
strained the  natural  law  ?  Can  it  be  said  that  such 
a  showing  is  conclusive  evidence  that  the  bimetallic 
law  prevented  the  natural  law  from  causing  still 
greater  changes  ?  Are  these  what  the  bimetallist 
calls  slight  or  immaterial  changes,  and  really  an  ap- 
proximation of  the  market  to  the  legal  ratio  ?  If 
so,  then,  I  repeat,  what  percentage  is  large  enough  to 
be  material  ?  If  a  percentage  of  change  is  sufficient 
to  drive  one  of  the  metals  out  of  circulation,  dis- 
arrange all  prices  and  business,  make  the  country 
monometallic,  and  break  down  bimetallism  itself,  is 
nothing  but  a  small,  insignificant  variation,  really 
proving  that  bimetallism  had  saved  the  world  from 
the  most  dire  disasters,  then,  I  ask,  what  percentage 
of  a  change  would  be  material,  and  how  great  must 
that  percentage  be,  before  bimetallism  can  be  robbed 
of  the  credit  of  having,  through  its  beneficent  action 
in  converting  itself  into  a  parachute,  saved  the  world 
from  destruction  by  arresting  the  fall  of  the  immense 
masses  of  falling  gold  ?  These  variations  were  ma- 
terial and  most  serious.  The  figures  themselves 
demonstrate  it  more  conclusively  than  words  can. 
If  these  changes  in  the  ratio  between  gold  and  silver 
are  but  slight  and  immaterial  changes,  and  are  really 
approximations  to  the  same  ratio,  then  certainly 
there  has  been  nothing  but  a  slight  and  immaterial 
change  in  the  prices  of  commodities  since  1873, 


246  SOME   GENERAL  TOPICS 

prices  are  approximately  the  same  now  as  they  were 
then.  Calling  attention  to  these  things  serves  to 
show  how  unreasonable  the  bimetallist's  contention 
is.  He  is  not  only  unreasonable,  but  he  is  incon- 
sistent, treating  the  degree  of  changes  in  the  relative 
prices  of  gold  and  silver  as  unimportant,  and  the 
same  degree  of  changes  in  prices  of  commodities  as 
being  utterly  ruinous  to  the  country.  He  claims 
that  his  system  prevented  a  greater  fall  in  the  rela- 
tive value  of  gold,  notwithstanding  the  tremendous 
production  since  1850,  and  yet  the  figures  show  that 
after  1866,  after  gold  had  ceased  flowing  into  France, 
and  up  to  1873,  there  was  a  greater  change,  propor- 
tionately, in  the  commercial  ratio,  than  there  had 
been  from  1850-1866,  or  ever  before.  If  the  bi- 
metallic law  held  the  commercial  ratio  steady  from 
1850-1866,  why  did  it  not  do  so  during  1866-1873 
when  the  strain  was  not  nearly  so  great  ?  If  the 
bimetallic  law  cannot  prevent  slight  variations  in 
the  market  ratio,  how  can  it  prevent  the  greater 
variations  ?  It  is  idle  to  say  that  it  can  prevent  the 
greater  and  not  the  less,  and  the  truth  is  that  the 
conclusion  to  be  drawn  from  these  facts  and  figures, 
and  the  only  conclusion  which  can  be  drawn  from 
them,  is,  that  the  much-vaunted  bimetallic  law,  or 
the  economic  force,  had  no  influence  at  all  during 
all  these  periods  on  the  market  ratio  or  relative 
values  of  silver  and  gold. 

We  have  seen  that  the  bimetallist's  claim,  that 
government  by  fixing  a  certain  ratio,  sets  a  certain 
economic  force  in  motion  which  will  compel  the 
market  ratio  to  conform  to  the  legal  ratio,  is,  in 


BIMETALLISM  247 

effect,  nothing  more  than  saying  that  government 
can  fix  the  prices  of  all  other  commodities  as  well  as 
silver  and  gold ;  and  we  have  further  seen  that  the 
notion  that  government  can  fix  prices  and  maintain 
them  at  the  prices  fixed  is  contrary  to  all  experience. 
We  have  found  that  the  bimetallist  has  simply  as- 
sumed that  it  was  the  influence  of  the  bimetallic  law 
of  France  which  held  the  market  ratio  of  silver  and 
gold  up  to  the  legal  ratio.  We  have  found  that  the 
market  ratio  of  silver  and  gold  was  not  held  up  to 
the  legal  ratio,  at  any  time  during  the  period  in 
question.  We  have  found  that,  in  fact,  the  bimetal- 
lic law  had  no  influence  in  holding  the  market  ratio 
up  to  the  legal  ratio,  and  that  each  metal  was,  at  all 
times,  subject  to  its  own  conditions  of  supply  and 
demand.  And  finally,  and  conclusively,  the  bi- 
metallic law  of  France  with  its  mythical  economic 
force,  which,  as  they  say,  creates  an  increased  mon- 
etary demand  for  the  cheaper  metal  thus  increasing 
its  value,  and  a  corresponding  decreased  monetary 
demand  for  the  dearer  metal,  thus  decreasing  its 
value,  could  not,  and  did  not,  prevent  greater  changes 
in  the  market  ratios  of  silver  and  gold,  simply  be- 
cause the  use  of  a  precious  metal  as  money  does 
not,  as  has  been  shown  in  Chapter  VI.  of  Part  I.  of 
this  work,  create  such  a  demand  for  the  metal  as  will 
cause  a  rise  in  its  market  price,  or  in  its  purchasing 
power,  and  this  being  so,  it  follows  that  neither  an 
increased  nor  a  decreased  demand  for  the  metal  for 
monetary  purposes  can  affect  its  price  or  its  pur- 
chasing power.  This  alone,  independent  of  all  the 
other  reasons  and  considerations,  is  sufficient  to 


248  SOME   GENERAL  TOPICS 

show  that  the  whole  bimetallic  theory  has  no  basis 
in  reason,  principle,  fact,  experience,  or  history,  to 
stand  upon. 

The  allegation  that  the  demonetization  of  silver 
in  1873  caused  the  recent  fall  in  the  market  price  of 
silver  is,  for  the  same  reasons,  and  as  shown  in  the 
said  Chapter  VI.  of  this  work,  groundless.  It  has 
already  been  shown  that  demonetization  did  not 
cause  the  fall  in  the  price  of  silver. 

§  5«  The  superiority  claimed  by  the  international 
bimetallist  for  his  system  over  that  of  national  bi- 
metallism, is  based  upon  the  assumption,  that  the 
joinder  of  several  of  the  principal  commercial  nations 
in  a  bimetallic  system  will  strengthen  the  system, 
increase  its  stability,  and  will  enable  it  to  continue 
and  prolong  its  beneficent  action  for  a  much  longer 
time  than  a  single  nation  can.  The  claim  is  that 
this  increase  of  strength  and  stability,  and  prolonga- 
tion of  the  beneficent  bimetallic  action  will  be  -se- 
cured by  the  co-operation  of  several  States  for  the 
following  reasons: 

(1)  It  increases  the  stock  of   money  metal  by 
uniting  all  the  money-metal  stock  of  all  the  States 
in  the  league,  so  that  it  will  take  a  longer  time  to 
withdraw  all  of  the  metal  which  at  any  time  tends 
to  become  dearer,  thus  prolonging  the  existence  of 
bimetallism. 

(2)  It  will  cause  a  greater  increased  demand  for 
the  metal,  which  tends  to  become  cheaper,  and  this 
greater  increased  demand  will  cause  this  metal  to 
rise  more  in  value,  than  it  would  if  that  demand 
were  confined  to  one  of  the  countries. 


BIMETALLISM  249 

(3)  To  the  extent  of  the  number  of  States  co- 
operating it  reduces  the  number  of  outside  States 
which  are  likely  to  demand  the  dearer  metal,  and 
thus  it  reduces  the  demand  for  the  dearer  metal  and 
prevents  its  drain  from  the  States  comprising  the 
league. 

These  reasons  look  very  plausible,  but,  unfortu- 
nately, they  are  all  fallacious. 

(1)  The  stock  of  money  metal  in  the  league  is 
not  increased,  neither  are  all  the  stocks  of  all  the 
States  in  the  league  thrown  into  one  common  fund 
to  draw  from.      Each  State  will  hold  and  keep  its 
own  stock  precisely  in  the  same  manner  as  if  it  had 
not  entered  into  the  league.     There  will  be  no  larger 
stock  of  the  dearer  metal  after  the  formation  of  the 
league,  than  there  was  in  the  States  before,  and  it 
would  not  take  any  longer  time  to  withdraw  it  from 
all  the  States  jointly,  than  it  would  to  withdraw  it 
from  them  severally. 

(2)  Whether  or  not  it  would  create  a  greater  in- 
creased demand  for  the  cheaper  metal,  depends  upon 
circumstances.      If   silver,    for   instance,    were   the 
cheaper  metal,  and  all  of  the  countries  joining  the 
league  were  already  stocked  up  with  a  full  supply  of 
silver  as  our  country,  France  and  the  other  States 
of  the  Latin  Union,  and  Germany  now  are,  and  no 
State  which  had  theretofore  used  only  gold,  such  as 
England,  for  example,  joined  the  league,  then  there 
would  be  no  greater  increased  demand  for  the  cheaper 
metal. 

(3)  Whether  there  would  be  any  less  demand  for 
the  dearer  metal  in  any  one  or  more  of  the  States  of 


250  SOME   GENERAL  TOPICS 

the  league  after  its  formation  than  there  would  have 
been  had  it  not  been  formed,  depends,  also,  upon 
circumstances.  It  by  no  means  follows  as  a  matter 
of  course.  The  necessities  of  one  of  the  members  of 
the  league  may  compel  it  to  dispose  of  all  its  stock 
of  the  dearer  metal  to  either  some  State  outside  of 
the  league  or  to  some  one  or  more  of  the  States 
within  it,  in  which  case  the  member  parting  with  the 
dearer  metal  will  become  monometallic  in  spite  of 
the  league ;  or  the  necessities  of  one  of  the  members 
of  the  league  may  compel  it  to  withdraw  the  dearer 
metal  from  one  or  more  of  the  other  members. 

The  vice  of  the  whole  argument  is,  that  it  assumes 
that  the  only  way  in  which  the  metal  which  tends  to 
become  dearer  can  be  withdrawn  from  the  circula- 
tion of  a  country  is  to  drive  the  metal  altogether  out 
of  the  country.  As  already  explained,  this  is  not  at 
all  necessary.  Every  pound,  dollar,  franc,  or  mark 
of  the  dearer  metal  may  remain  in  the  country,  and 
yet  not  a  pound,  a  dollar,  a  franc,  or  a  mark,  be  in 
circulation  as  money ;  that  is,  being  offered  in  ex- 
change at  the  legal  ratio  or  rating. 

When  we  speak  of  the  metal  which  tends  to  be- 
come dearer  we  mean  gold,  and  when  we  speak  of 
the  metal  which  tends  to  become  cheaper  we  mean 
silver,  and  it  will  be  simpler  to  plainly  say  gold  and 
silver.  It  is  exceedingly  doubtful  whether,  even  if 
all  the  commercial  nations  of  the  earth  joined  in  a 
bimetallic  league,  it  would  in  any  way  cause  any  de- 
creased demand  for  gold.  When  one  considers  the 
vast  amounts  of  all  the  obligations,  given  by  gov- 
ernments, states,  countries,  municipalities,  school- 


BIMETALLISM  2$  I 

districts,  and  other  governmental  subdivisions, 
railroads  and  other  corporations,  and  individuals, 
where  the  principal  and  interest  are  payable  in  gold, 
it  is  not  hard  to  understand  that  the  monetary  de- 
mand for  gold  would,  at  all  times,  though  it  were 
the  dearer,  be  greater  than  for  silver,  though  it 
were  the  cheaper;  and  that,  if  it  were  true  that  the 
monetary  demand  for  a  metal  would  increase  its 
value,  then,  whenever  silver  became  cheaper,  gold 
would  continue  to  become  dearer  and  dearer,  be- 
cause if  silver  did  not  exchange  on  equal  terms  with 
gold,  no  creditor  who  was  entitled  to  the  gold  would 
accept  silver;  whereas  if  the  silver  exchanged  on  an 
equality  with  gold,  a  creditor  would  accept  silver  or 
gold  indifferently.  The  above  example  is  only  given 
to  show  that  the  bimetallist  is  mistaken  under  his 
own  theory,  even  if  it  were  correct. 

It  will  be  observed  that  the  whole  claim  of  supe- 
riority of  the  international  over  the  national  system, 
is  that  the  international  more  greatly  increases  the 
demand  for  the  cheaper  metal,  for  use  as  money, 
and  more  greatly  decreases  the  demand  for  the 
dearer  metal  than  the  national  system  does.  But 
we  have  seen  that  the  use  of  a  precious  metal  as 
money  does  not  create  such  a  demand  as  will  in- 
crease its  price  or  purchasing  power,  hence  any 
greater  or  any  lesser  increase  or  decrease  of  the 
demand  of  a  metal  for  use  as  money  is  a  matter  of 
entire  indifference,  and  will  not  affect  the  price  or 
the  value  of  the  metal  in  any  degree.  International 
bimetallism  has,  therefore,  no  claims  to  any  great 
superiority  over  national  bimetallism.  However 


252  SOME   GENERAL  TOPICS 

similar  both  systems  may  be,  and  however  subject 
both  are  to  the  same  arguments  and  objections,  yet, 
in  one  respect,  there  is  a  wide  difference  between 
the  demands  of  the  national  and  the  international 
bimetallist. 

In  addition  to  all  his  other  demands  the  national 
bimetallist  demands  "  such  legislation  as  will  pre- 
vent, for  the  future,  the  demonetization  of  any  kind 
of  legal-tender  money  by  private  contract."  Waiv- 
ing all  questions  as  to  the  constitutionality  or  effec- 
tiveness of  such  proposed  legislation,  the  object  is 
obvious.  It  is  to  prevent  the  people  from  contracting 
themselves  out  of  bimetallism — that  is,  that  they 
must  accept  it  and  its  money  whether  they  want  to 
or  not.  I  will  let  history  answer  whether  any  gov- 
ernment ever  was  able  to  compel  its  people  to  accept 
and  use  any  sort  of  money  it  saw  fit  to  impose  upon 
them.  Clearly  the  object  of  this  legislation  is  to  nul- 
lify all  contracts  made  payable  in  gold,  and  to  compel 
a  creditor  to  accept  silver  in  payment  against  the  ex- 
press terms  of  his  contract.  It  excludes  gold  from 
being  contracted  for  and  dealt  with  as  any  other 
commodity  is  contracted  for  and  dealt  with.  This 
is  such  a  gross  and  unwarranted  interference  with 
the  right  of  private  contract  that  one  can  scarcely 
believe  it  was  ever  seriously  advocated  by  any  per- 
son; and  yet  it  has  been,  and  still  is,  so  seriously 
advocated  by  one  of  the  great  parties  of  our 
country. 

§  6.  Suppose,  however,  that  the  bimetallic  system 
can  be  made  to  work,  and  that  it  can  hold  the  market 
values  of  the  two  metals  approximately  up  to  the 


BIMETALLISM  253 

legal  ratio,  what  good  will  it  do,  or  what  is  to  be 
gained  by  it  ? 

The  benefits  claimed  to  follow  from  the  introduc- 
tion of  bimetallism  are: 

(1)  It  will  establish  an  approximate  par  of  ex- 
change between  the  gold-using  and  the  silver-using 
nations. 

(2)  It  will  secure  a  higher  degree  of  stability  in 
the   compound  mass  of  money  thus  formed  than 
could  possibly  exist  with  the  two  metals  separate 
and  independent  in  their  value  movements. 

(3)  By  increasing  the  volume  of  money  it  will 
cause  a  rise  of  prices,  which  will  stimulate  activity 
in  trade  and  business,  and  will  thus  be  of  incalculable 
benefit  to  mankind. 

(i)  The  bimetallist  claims  that  the  demonetiza- 
tion of  silver  has  broken  the  par  of  exchange  between 
the  gold-using  and  the  silver-using  countries.  What 
is  meant  by  the  expression  "  broken  par  of  ex- 
change," is  that  since  the  demonetization  of  silver 
the  fluctuations  in  the  value  of  silver  have  been  so 
great  and  so  frequent,  that  a  par  of  exchange  no 
longer  exists  between  these  countries;  and  the  evils 
resulting  from  the  so-called  broken  par  of  exchange 
have  been,  by  the  bimetallists,  magnified  to  such  an 
extent  that  it  creates  a  suspicion  that  the  evil  is 
wholly  imaginary.  Competent  and  reliable  opinion 
has  been  given  to  the  effect  that  it  has  not  limited 
or  burdened  the  trade  between  these  countries  to 
any  serious  extent.  The  only  way  in  which  this 
broken  par  of  exchange  works  so  injuriously,  as  the 
bimetallist  alleges  it  does,  is,  that  a  manufacturer  or 


SOME  GENERAL  TOPICS 


seller  of  goods  in  a  gold-using  country,  in  his  trade 
with  a  silver-using  country,  may  suffer  a  loss,  on  ac- 
count of  a  fall  in  the  value  of  silver,  in  which  money 
he  was  to  be  paid,  before  the  proceeds  of  his  sales 
can  be  brought  home  to  him.  That  is,  the  whole 
cause  of  complaint  about  this  exchange  is  centred  in 
this  one  fact,  —  the  fluctuations  in  the  value  of  silver. 
The  bimetallist  assumes  (as  he  assumes  everything 
else)  that  the  restoration  of  bimetallism  will  make 
silver  more  steady  in  value,  and  in  this  way  the  ap- 
proximate par  of  exchange  will  be  established.  But 
will  bimetallism  hold  the  relative  values  of  silver  and 
gold  steadier  ?  It  has  just  been  shown  that  neither 
on  principle  can  it  do  so,  nor  in  fact  has  it  ever  done 
so.  Since  any  increased  or  decreased  demand  for  a 
precious  metal  for  use  as  money  does  not  in  any  way 
affect  either  the  price  or  the  purchasing  power  of  the 
metal,  and,  since  the  only  power  claimed  for  bimetal- 
lism is  that  it  increases  the  monetary  demand  for  the 
cheaper  metal,  and  decreases  the  same  demand  for 
the  dearer  metal,  it  follows  that  bimetallism  cannot 
render  the  value  of  silver  any  more  steady  than  its 
own  conditions  render  it;  and,  consequently,  the 
first-claimed  benefit  of  bimetallism  has  no  merit; 
there  is  absolutely  nothing  in  it. 

(2)  Mr.  F.  A.  Walker,  in  his  work,  International 
Bimetallism,  page  148  et  seq.,  explains  how  bimetal- 
lism will  secure  a  higher  degree  of  stability  in  the 
compound  mass  of  the  money  formed  by  it,  than 
can  possibly  exist  with  the  two  metals  separate 
and  independent  in  their  value  movements,  as  fol- 
lows: 


BIMETALLISM  2$$ 

"  If,  then,  each  metal  has  its  value  in  commerce  sub- 
ject to  the  natural  causes  which  affect  the  supply  and  to 
commercial  causes  which  govern  the  demand,  it  is  evident 
that  we  shall  have  an  incessant  fluctuation,  not  only  in 
the  relation  between  the  two  metals,  but  also  in  the  rela- 
tion of  metal  money  to  prices.  Such  fluctuations  cannot, 
in  the  nature  of  the  case,  be  suppressed;  but  if  the  two 
metals  can  somehow  be  joined  together  in  their  function 
as  money,  it  is  highly  reasonable  to  expect  that  the 
aggregate  influence  of  fluctuations  in  price  will  be  re- 
duced. There  will  be,  on  the  whole,  as  things  are  likely 
to  go,  a  considerable  compensating  effect,  giving  the  result 
of  a  greater  degree  of  steadiness  in  values.  Whenever 
one  metal  tends  to  fall  and  the  other  to  rise,  or  where 
both  tend  to  rise  or  to  fall  with  different  degrees  of 
rapidity,  the  operation  of  the  bimetallic  system  must  be 
in  the  direction  indicated." 

In  his  work  entitled  Money,  Trade,  and  Industry, 
page  1 66,  etc.,  Mr.  Walker  explains  the  operation  of 
bimetallism  by  which  greater  stability  of  values  is 
secured  as  follows : 

"  The  object  of  bimetallism  is,  by  joining  the  two 
metals  together  in  the  coinage,  at  a  fixed  ratio,  to  dimin- 
ish the  extent  of  the  fluctuations  to  which  the  value 
of  each  would  be  separately  liable,  by  generating  a 
compensatory  action  between  the  two,  by  which  the 
cheapening  metal  shall  receive  a  larger  use,  while  the 
appreciating  metal  drops  partially  out  of  its  former  de- 
mand, thus  making  the  two  fall  together,  if  there  must  be 
a  fall,  or  rise  together,  in  the  opposite  case;  or,  cohceiv- 
ably,  making  the  tendency  of  one  to  fall  precisely  coun- 
teract the  tendency  of  the  other  to  rise. 


2$6  SOME   GENERAL  TOPICS 

"  Thus  we  may  suppose  four  successive  cases  to  illus- 
trate the  working  of  this  principle. 

"  The  first  is,  where  the  demand  for  the  use  of  either 
metal  in  trade  remaining  the  same,  a  large  increase  in 
the  supply  of  one  metal,  A,  takes  place,  the  supply  of  the 
other,  B,  remaining  unchanged.  In  this  case,  without 
the  bimetallic  system,  the  value  of  A  would  tend  to  fall 
rapidly  through  a  considerable  space,  while  the  value  of 
B  would  stand  fast.  With  the  bimetallic  system,  the 
joint  supply  of  the  two  metals  would  be  applicable  to 
meet  the  joint  demand  of  the  two.  Now,  as  the  joint 
supply  has  been  increased  without  any  change  in  the 
joint  demand,  there  must  be  a  fall  in  value;  but  the  fall 
will  be  in  the  two  indistinguishably,  except  for  a  slight 
degree  of  delay  and  friction  in  exchange.  Both  will  fall, 
but  the  depth  of  the  fall  will  be  diminished  as  the  surface 
over  which  it  is  to  take  place  has  been  enlarged. 

"  The  second  is  where,  the  demands  of  trade  for  both 
metals  remaining  the  same,  a  diminution  occurs  in  the 
supply  of  A,  while  the  supply  of  B  remains  unchanged. 
Here,  by  the  operation  of  the  same  principle,  a  rise  in 
the  value  of  money  will  take  place,  since  the  joint  supply 
has  been  reduced  without  any  corresponding  change  in 
the  joint  demand.  The  rise  will  be  a  rise  of  the  two 
metals  indistinguishably,  the  height  of  the  rise  being 
diminished  as  the  surface  over  which  it  is  to  take  place 
has  been  enlarged. 

"The  third  case  is  where,  demand  remaining  the 
same,  the  supply  of  both  metals  undergoes  a  change  in 
the  same  direction,  either  of  increase  or  of  diminution,  at 
the  same  time.  In  this  event,  the  fall  or  rise  will  again 
be  of  the  two  indistinguishably,  the  point  reached  being 
a  mean  between  the  points  which  would  have  been  reached 
by  the  two  severally. 


BIMETALLISM  2$/ 

11  The  fourth  case  is  where,  demand  remaining  the 
same,  the  supply  of  the  two  metals  undergoes  a  change 
at  the  same  time,  but  in  opposite  directions;  A  through 
diminution,  B  through  increase.  In  this  case,  the  oppo- 
site tendencies  will  counteract  each  other.  If  of  equal 
force,  the  value  of  money  will  be  stable;  if  of  unequal 
force,  there  will  be  movement  in  the  direction  of  the 
stronger  to  the  extent  of  the  difference  between  the  two. 
Instead  of  one  falling  and  the  other  rising  in  value,  the 
change  will  be  wrought  in  the  two  indistinguishably. 

"  It  will  appear  from  the  foregoing  statements  that, 
under  the  bimetallic  system,  the  value  of  money  will  be 
liable  to  vary  more  frequently  than  under  the  mono- 
metallic system.  That  is,  a  change  in  respect  to  either 
constituent  of  the  money  mass  will  produce  a  change  of 
value;  and  it  is  apparent  that  the  chances  of  change  are 
greater  with  two  constituents  than  with  one.  On  the 
other  hand,  the  variations  under  the  bimetallic  system 
are  likely  to  be  less  extensive." 

While  these  statements  look  very  fair  on  their 
face,  yet  they  are  not  so.  Silver  and  gold  are  not, 
as  has  been  shown  in  Chapter  VI.  of  Part  I.  of  this 
work,  thrown  together  or  mixed  in  one  compound 
mass.  Neither  is  there,  under  bimetallism,  any 
joint  supply  of  the  two  metals,  and  it  is  highly  im- 
proper to  regard,  or  to  speak  of,  the  two  metals  as 
being  joined  and  united  into  one  joint  supply,  or 
into  one  compound  or  joint  mass  of  supply.  Equally 
improper  is  it  to  speak  of  a  joint  demand  upon  the 
joint  or  compound  mass  of  the  supply  of  both  metals, 
or  of  a  demand  upon  the  two  metals  jointly.  All  of 

these  expressions  are  incorrect,  because  they  are  not 
17 


258  SOME   GENERAL  TOPICS 

in  accord  with  the  actual  facts,  and  they  are,  as  will 
be  shown,  directly  contradictory  to,  and  subversive 
of,  the  fundamental  principle  of  bimetallism. 

There  never  was,  nor  will  there  be,  under  bimetal- 
lism, any  such  thing  as  a  joint  or  a  compound  mass 
of  supply  of  silver  and  gold.  All  that  bimetallism 
does,  in  this  respect,  is  to  have  the  law  declare  that 
a  certain  portion  of  silver  shall  be  equal,  in  the  cir- 
culating medium,  to  a  certain  portion  of  gold.  It  is 
this  equality  which  constitutes  bimetallism,  and  its 
mission  is  to  preserve  this  equality.  Now;  if  the 
whole  amounts  of  silver  and  of  gold,  which  are  to  be 
used  as  money,  were  compounded  into  one  com- 
pound or  composite  mass,  or  were  joined  and  united 
in  one  joint  mass  of  supply,  then,  the  piece  of  silver 
which  we  now  call  a  dollar,  could  not  equal  the  gold 
dollar  for  there  would  no  longer  be  two  metals,  but 
only  one,  and  there  would  be  no  longer  one  piece  of 
silver  coined  into  one  dollar,  and  one  piece  of  gold 
coined  into  another  dollar,  but  there  would  be  one 
piece  coined  out  of  the  mixture  of  silver  and  gold 
metals,  so  that  the  demand  would  be  upon  the  com- 
pound metal,  and  the  coin  would  be  composed  of  a 
compound  of  the  two  metals  in  the  fixed  proportions, 
or,  to  state  the  same  thing  in  a  different  form,  it 
would  be  composed  of  both  silver  and  gold,  jointly, 
in  the  fixed  proportions.  In  the  case  of  such  a  com- 
pounding or  joinder  of  the  two  metals,  if  the  one 
metal,  silver,  for  instance,  fell  in  value,  then,  though 
the  whole  compound  or  joint  mass  of  supply  would 
not  fall  as  much  proportionately  as  the  silver  alone 
did,  yet  it  would  fall  in  value  as  much  as  the  silver 


BIMETALLISM  259 

fell,  but,  it  would  be  the  silver,  and  the  silver  alone, 
and  not  the  gold,  which  fell;  the  market  value  of 
the  supply  of  silver  outside  of  the  compound  or 
joint  mass  would  fall,  and  the  market  price  of  gold 
outside  would  remain  unaffected,  and  in  this  case 
the  value  of  the  money  would  be  controlled  exclu- 
sively by  the  market  value  of  the  metals  respectively. 
Because  both  silver  and  gold  circulate  upon  an 
equality  in  the  circulation  is  no  reason  for  treating 
them  as  being  joined  or  compounded  into  one  com- 
pound or  joint  mass  of  supply.  Each  metal  has  its 
own  separate  and  several  supply;  each  is  separately 
taken  out  of  its  several  supply;  each  is  separately 
coined ;  and  each  is  separately  used ;  there  is  never 
any  joinder  or  any  compounding.  There  is  nothing 
more  than  the  use  of  both  metals  in  the  circulating 
medium.  Because  wheat  is  used  to  make  wheat 
bread,  and  Indian  corn  is  used  to  make  corn  bread, 
and  both  kinds  of  bread  are  eaten,  furnishes  no 
reason  for  treating  all  the  wheat  and  all  the  Indian 
corn  as  being  in  one  compound  or  joint  mass  of 
supply ;  nor  would  it  make  the  case  of  the  wheat 
and  Indian  corn  any  stronger,  if  the  law  enacted 
that  sixteen  loaves  of  the  Indian  corn  bread  should 
be  equal,  for  the  purpose  of  sustenance,  to  one  loaf  of 
wheat  bread,  or  that  sixteen  loaves  of  the  Indian  corn 
bread  should  be  equal  in  value  to  one  loaf  of  wheat 
bread.  Fixing  either  one  or  both  of  these  ratios 
between  the  two  different  breads,  would  never  justify 
anyone  in  treating  all  the  wheat  and  all  the  Indian 
corn  as  being  in  one  compound  or  joint  mass  of 
supply,  and  there  is  not  one  whit  more  reason  for 


260  SOME   GENERAL   TOPICS 

treating  the  silver  and  the  gold  as  being  in  one  com- 
pound or  joint  supply. 

Silver,  gold,  paper  money,  nickel  and  copper, 
comprise  our  circulating  medium.  Nickel  and  cop- 
per are  coined  at  a  certain  ratio  between  them  and 
silver,  or  between  them  and  gold  ;  all  are  circulating 
at  fixed  ratios.  As  well  say  that  all  these  are  com- 
pounded or  joined  into  one  compound  joint  mass  of 
supply  as  to  say  that  silver  and  gold  are. 

Since  there  is  no  such  thing  as  a  joint  supply, 
there  can,  of  course,  be  no  such  thing  as  a  joint  de- 
mand. But  any  such  joint  supply  and  joint  demand, 
if  there  were  any,  would  be  wholly  at  variance  with 
the  bimetallic  theory.  That  theory  is  that  bimetal- 
lism, by  creating  an  increased  demand  for  the  falling 
metal  will  increase  its  value,  while  the  corresponding 
decrease  of  the  demand  for  the  dearer  metal  will  de- 
crease its  value,  holds  the  market  ratio  between  the 
two  metals  firmly  up  to  the  legal  ratio.  This  is  a 
several  demand  upon  each  metal  severally,  and  not 
upon  both  metals  jointly  as  joined  together  in  one 
mass  of  supply.  A  joint  demand  upon  a  joint  or 
compound  supply  of  the  two  metals  would  defeat 
the  very  object  of  bimetallism,  and  there  would  be 
no  opportunity  left  for  its  compensatory  action ; 
because,  such  a  joint  demand  upon  such  a  joint  or 
compound  supply  would  have  the  effect,  not  to  in- 
crease the  value  of  one  metal  (the  one  which  was 
falling),  but  to  increase  the  value  of  the  compound 
or  joint  mass  of  both  metals.  Such  a  demand  upon 
such  a  supply  would  not  hold  the  market  price  of 
the  two  metals  up  to  the  legal  ratio,  and  a  several 


BIMETALLISM  261 

demand  for  the  metal  which  was  falling  would  be 
impossible  as  against  the  compound  or  joint  mass  of 
supply  of  both  metals.  They  are  therefore  con- 
tradictory to,  and  subversive  of,  the  principle  of 
bimetallism,  and  it  would  not  secure  the  stability 
of  the  value  of  the  two  metals,  but  would  leave  each 
metal  to  be  governed,  wholly,  by  its  own  conditions 
of  supply  and  demand.  And  furthermore  there  is 
not,  therefore,  under  bimetallism,  any  such  thing  as 
a  joint,  or  a  compound,  mass  of  supply  of  silver  and 
gold;  there  is  not  such  a  thing  as  a  joint  demand 
upon  any  such  compound,  or  joint,  supply;  and 
there  is  not  any  such  thing  as  an  indistinguishable 
fall  or  rise  in  the  two  metals,  or  a  rise  or  a  fall  in 
the  two  metals  indistinguishably  ;  if  there  were,  how 
would  bimetallism  know  upon  which  metal  to  direct 
its  demand,  in  order  to  raise  the  value  of  the  falling 
metal,  and  depress  the  value  of  the  rising  metal  ? 
Evidently  the  bimetallist  does  not  wish  to  be  under- 
stood as  meaning  just  what  he  says,  when  he  speaks 
of  joint  and  compound  masses  of  supply,  and  joint 
demands.  What  the  bimetallist  really  means,  and 
what  he  says,  too,  is  that : 

"  By  generating  a  compensatory  action  between  the 
two,  by  which  the  cheapening  metal  shall  receive  a  larger 
use,  while  the  appreciating  metal  drops  partially  out  of 
its  former  demand,  thus  making  the  two  fall  together  if 
they  must  fall,  or  rise  together  in  the  opposite  case." 
"  Making  the  tendency  of  the  one  to  fall  precisely 
counteract  the  tendency  of  the  other  to  rise." 

But  this  is  nothing  more  nor  less  than  the  bimetallic 


262  SOME   GENERAL   TOPICS 

economic  force  which  holds  the  market  values  or 
ratio,  of  the  two  metals  up  to  the  legal  ratio.  This 
theory  has  already  been  disposed  of  and  shown  to 
be  unsound  and  untrue.  And  so  it  appears  that 
there  is  nothing  in  the  second  claimed  benefit. 

The  third  claimed  benefit  is,  that  by  increasing 
the  volume  of  money  it  will  cause  a  rise  of  prices, 
which  will  stimulate  activity  in  trade  and  business. 

This  benefit  need  not  detain  us  very  long.  It  is 
nothing  more  than  the  old  quantity-of-money  theory. 
In  the  fifth  chapter  of  the  first  part  of  this  work  it 
has  been  shown  that  the  volume  or  quantity  of 
money  has  no  influence  upon  prices,  unless  the 
money  be  depreciated,  and  it  would  only  be  a  waste 
of  time  to  repeat  the  argument  here.  Now,  the 
alleged  increased  activity  in  business,  is  said  to  be 
the  result  of  the  increase  in  prices,  caused  by  the 
increase  in  the  quantity  of  money,  through  bimetal- 
lism ;  but  the  quantity  of  money  has  no  influence  on 
prices,  so  that  neither  the  increased  quantity  of 
money  nor  bimetallism  has  anything  to  do  with 
stimulating  activity  in  business. 

Here  the  great  inconsistency  and  contradiction  in 
the  bimetallists'  contention  become  so  plainly  ap- 
parent that  it  is  a  matter  of  surprise  that  none  of 
them  perceive  the  inconsistency  and  the  contradic- 
tion in  their  position.  They  first  claim  that  bi- 
metallism is  practicable  because  the  market  ratio 
between  the  two  metals  will  be  held  up  to  the  legal 
ratio  by  means  of  an  economic  force,  or  compensatory 
action,  which  will  cause  an  increased  demand  for 
monetary  purposes  for  the  metal  which  tends  to  de- 


BIMETALLISM  263 

cline  in  its  market  value,  and  this  increased  demand 
will  cause  the  market  value  of  the  cheaper  metal  to  rise 
up  to  the  legal  ratio  ;  and  that  the  increased  demand 
for  the  cheaper  metal  will  cause  a  decreased  mone- 
tary demand  for  the  dearer  metal,  which  decreased  de- 
mand will  cause  it  to  fall  to  the  legal  ratio.  Again, 
we  have  seen  that  in  the  second  benefit  claimed  for 
bimetallism,  it  is  claimed  that  it  will  secure  a  higher 
degree  of  stability  in  the  mass  of  money,  which  is 
brought  about  by  this  same  economic  force,  or  com- 
pensatory action,  by  which  there  will  be  an  increased 
monetary  demand  for  the  cheaper  metal,  and  a 
decreased  monetary  demand  for  the  dearer  metal, 
which  increased  and  decreased  demand  will  hold  the 
market  value  of  both  metals  stable  at  the  legal  ratio. 
And  yet  when  we  come  to  the  third  benefit  claimed 
for  bimetallism  we  find  that  this  benefit  is  to  come 
from  the  increased  volume  of  money,  which  will 
cause  a  rise  of  general  prices,  which  in  turn  will 
stimulate  trade,  etc.  That  is  to  say,  that  the  in- 
crease of  money  will  increase  general  prices,  that  is, 
reduce  the  value  of  money — decrease  its  purchasing 
power.  From  which  it  necessarily  follows  that  the 
greater  the  quantity  of  the  metals  which  are  coined 
into,  and  used  as,  money,  the  less  the  metal  and  the 
money  will  be  worth,  the  more  it  will  fall  in  value. 
First,  they  claim  that  the  more  of  the  metal  used  as 
money,  the  greater  will  be  the  value  of  the  metal, — 
the  greater  will  be  its  purchasing  power;  and,  sec- 
ondly, they  claim  that  the  greater  the  quantity  of 
the  metal  used  as  money,  the  less  valuable  the 
money  and  the  metal  will  become. 


264  SOME   GENERAL  TOPICS 

After  all  the  declamation,  emphasis,  and  fine 
phrases  we  find  that  there  is  no  real  improvement  or 
benefit  to  be  expected  from  bimetallism.  We  have 
found  that  there  is  nothing  but  an  emptiness  in 
bimetallism,  in  its  system,  and  in  its  professions.  It 
has  been  shown  to  be  incapable  of  doing  any  good ; 
but  it  does  not  follow  from  that  that  it  is  incapable 
of  doing  a  great  deal  of  harm,  for  it  is. 

§  7.  Suppose,  however,  that  I  am  mistaken  in 
my  conclusions,  and  that  bimetallism,  if  adopted, 
would  bring  about  all  the  benefits  claimed  for  it,  the 
question  whether  it  will  be  prudent  and  advisable  to 
change  our  present  monometallic  system  and  adopt 
bimetallism,  still  remains  to  be  answered.  To  prop- 
erly answer  this  question  involves  a  consideration  of 
its  benefits  and  disadvantages. 

The  first  benefit  claimed  for  it  is  that  it  will  estab- 
lish an  approximate  par  of  exchange  between  us,  a 
gold-using  country,  and  the  silver-using  countries. 
Now,  a  par  of  exchange  with  other  countries  is  of 
course  a  benefit  and  an  advantage,  but  it  is  to  be 
remembered  that  the  exchange  would  not  necessarily 
always  be  at  par  with  the  silver-using  countries,  even 
if  we  were  bimetallic.  There  is  always  more  or  less 
fluctuation  in  the  exchange,  and  it  always  requires 
some  calculation  to  arrange  it.  Without  bimetallism, 
when  silver  reaches  its  natural  level  of  price,  which 
is  must  soon  do,  the  exchange  will  approximate  par 
as  nearly  as  it  will  with  bimetallism.  The  chances 
of  loss  by  a  change  or  fall  in  the  value  of  silver  be- 
fore the  time  of  payment  under  a  time  contract  is  no 
more  than  the  same  risk  which  every  man  runs  under 


BIMETALLISM  265 

a  time  contract;  the  goods  which  he  has  agreed  to 
purchase  may  greatly  decline  in  value  before  the 
time  of  delivery  arrives,  and  he  must,  of  course, 
bear  the  loss.  Likewise,  by  a  change  of  the 
money  system,  by  which  a  depreciated  dollar  was 
made  a  legal  tender  for  the  payment  of  debts,  a 
creditor  might  suffer  loss.  Besides,  the  far  greater 
portion  of  our  trade  is  domestic,  and  much  the 
smallest  portion  of  it  is  foreign,  and  much  the  small- 
est portion  of  our  foreign  trade  is  with  the  silver- 
using  countries. 

It  is  clear  that  the  real  benefit,  so  far  as  a  par  of 
exchange  is  concerned,  will  not  be  very  great,  and 
it  would  not  require  a  very  great  inconvenience  to 
overcome  all  the  advantage  to  be  derived  from 
it. 

The  second  alleged  benefit  is  that  bimetallism  will 
secure  a  higher  degree  of  stability  in  the  compound 
mass  of  money — that  is,  a  greater  degree  of  stability 
in  silver  and  gold.  The  fluctuations  in  gold  have 
not  been  frequent  nor  extensive  for  many  years, 
and  even  if  bimetallism  would  tend  to  make  the 
variations  in  the  value  of  gold  less  extensive,  it 
would,  at  the  same  time,  tend  to  make  the  variations 
more  frequent.  This  is  conceded.  It  is  an  open 
question  whether  it  is  better  to  have  fewer,  but  more 
extensive,  variations  in  value,  or  more,  but  less  ex- 
tensive, variations.  The  merits  and  the  disadvantages 
of  both  are  so  evenly  balanced,  that  it  makes  it  ex- 
ceedingly doubtful  whether  bimetallism  would  in 
this  regard  be  of  any  benefit  at  all.  There  is  cer- 
tainly not  enough  of  benefit  to  be  expected  from  it 


266  SOME   GENERAL   TOPICS 

to  induce  any  people  to  incur  the  risk  of  any  possible 
disadvantage  which  might  result  from  its  adoption. 

The  third  benefit  claimed  is  that  it  will  increase 
the  volume  of  money,  and  this  will  stimulate  activity 
in  trade — that  is,  that  the  metallic  inflation  will  cause 
activity  in  trade.  Inflation  means  depreciation  of 
the  money.  It  is  extremely  doubtful  whether  the 
activity  in  trade  which  is  promoted  or  stimulated  by 
a  depreciated  currency  is  a  benefit.  It  is  not,  be- 
cause it  always  has  produced  an  unnatural  demand 
and  has  encouraged  an  unnatural  increase  in  the 
supply,  and  these  are  always  followed  by  a  col- 
lapse or  panic,  and  cause  far  more  loss  and  misery 
than  can  possibly  be  overcome  by  any  possible  bene- 
fit which  may  arise  from  the  temporary  activity  in 
business. 

In  considering  the  alleged  benefits  of  bimetallism 
the  probable  continuance  of  these  benefits  is  an 
item  to  be  taken  into  account.  We  have  seen  that 
neither  the  national  nor  the  international  bimetal- 
list  proposes  that  the  legal  ratio  shall  be  fixed  at  the 
market  ratio,  but  both  insist  that  silver  be  rated 
much  higher  in  the  legal  than  it  is  in  the  market  ratio. 
According  to  the  principles  they  have  laid  down, 
this  overvaluation  of  silver  would  cause  a  withdrawal 
of  all  the  gold  at  once  from  the  circulation.  If  this 
should  occur,  and  it  is  more  reasonable  to  expect 
that  it  will,  than  to  expect  that  it  will  not,  simply 
because  it  is  natural,  and  it  always  has  so  taken 
place ;  at  any  rate  if  it  occurs,  then  that  would  be 
an  end  of  bimetallism.  But  the  bimetallist  assumes, 
and  I  have  never  yet  found  out  upon  what  fact  or 


BIMETALLISM  267 

principle  he  bases  his  assumption,  but  no  matter,  he 
does  assume,  that  the  fixing  of  the  ratio  by  law,  and 
the  rating  of  silver  above  and  of  gold  below  their 
respective  ratings  in  the  market  ratio,  will  cause  the 
market  value  of  silver  to  rise  and  the  market  value 
of  gold  to  fall  until  both  meet  at  the  legal  ratio. 
Just  wherein  this  attractive  force,  which  draws  silver 
to  it  from  one  direction,  and  gold  to  it  from  another 
direction,  lies  in  the  legal  ratio,  or  what  makes  the 
legal  ratio  such  a  powerful  magnet,  has  never  been 
divulged.  It  is  a  trade  secret  which  the  bimetallist 
sacredly  keeps  to  himself,  in  the  doing  of  which  he 
is  neither  magnanimous  nor  patriotic.  However,  we 
will  suppose  bimetallism  fairly  launched ;  the  ques- 
tion is,  how  long  will  it  continue  ?  Until  one  metal 
or  the  other  becomes  undervalued  or  overvalued  in 
the  legal  ratio;  in  other  words,  until  the  market 
ratio  diverges  from  the  legal  ratio,  and  no  longer. 
We  have  seen  that  even  in  France  it  took  but  com- 
paratively a  few  years  for  either  the  gold  or  the 
silver,  as  the  case  might  be,  to  be  withdrawn  from 
circulation.  We  have  seen  that  France  was  practi- 
cally silver  monometallic  from  1820  to  1850,  and  was 
gold  monometallic  from  1851  to  1864.  It  is  there- 
fore entirely  safe  to  predict  that  it  would  be  but  a 
few  years  after  bimetallism  was  fairly  launched  until 
all  of  the  one  metal — in  this  case  it  would  be  the 
gold — would  be  withdrawn  from  the  circulation,  and 
as  soon  as  this  would  happen,  we  would  become 
silver  monometallic,  and  we  would  not  enjoy  a 
single  benefit  from  bimetallism.  We  would  have  a 
par  of  exchange  with  the  silver-using  countries,  but 


268  SOME   GENERAL   TOPICS 

a  broken  par  of  exchange  with  the  gold-using  coun- 
tries. We  would  have  no  greater  stability  in  the 
value  of  silver  than  just  what  its  own  conditions  of 
supply  and  demand  gave  it.  And  we  would  have 
no  stimulated  activity  in  trade. 

On  the  other  hand,  it  is  a  foregone  conclusion  that 
the  mere  prospect  of  the  adoption  of  bimetallism 
will  precipitate  a  financial  panic  of  such  magnitude 
as  the  world  has  probably  never  seen :  all  the  values 
will  be  disturbed,  ruin  and  destruction  of  business 
and  business  enterprise  will  become  the  prevailing 
condition.  As  silver  is  confessedly  to  be  over- 
valued, it  follows,  even  according  to  bimetallic  prin- 
ciples, that  all  the  gold  will  be  forthwith  drawn  from 
the  circulation,  and  we  will  become  silver  mono- 
metallic, and  worse  off  than  we  are  now,  for  we  will 
be  condemned  to  the  use  of  the  worst  money.  Busi- 
ness will  be  paralyzed ;  contracts  will  be  violated ; 
debts  will  be  paid  in  a  depreciated  currency,  and  all 
trust  and  confidence  will  vanish.  These  are  not 
mere  disadvantages,  they  are  positive  injuries.  But 
suppose  that  we  get  through  with  the  initial  troubles, 
and  that  we  even  do  so  without  driving  gold  out  of 
the  circulation,  and  in  the  course  of  time  confidence 
is  restored  and  business  begins  to  revive,  what  then  ? 
Then,  as  soon  as  the  market  ratio  between  gold  and 
silver  changes,  two  or  three  per  cent,  from  the  legal 
ratio  against  silver  we  must,  by  virtue  of  the  effect 
of  the  bimetallic  law,  fall  into  silver  monometallism. 
We  will  remain  silver  monometallic  until  another 
change  takes  place  in  the  market  ratio  of  silver  and 
gold — this  time  against  gold — when  we  will  fall  into 


BIMETALLISM  269 

gold  monometallism,  prices  and  values  will  be  again 
disturbed,  and  we  must  again  go  through  the  same 
business  disturbances  and  depressions,  and  so  on; 
nothing  but  incessant  alternations  and  changes  in 
the  measure  of  values  causing  always  the  same  busi- 
ness disasters  followed  by  the  same  business  depres- 
sions, uncertainties,  and  losses.  I  repeat  that  these 
results  are  not  mere  disadvantages,  but  they  are 
positive  injuries,  and  will  be  serious  calamities,  as 
compared  with  which  all  the  benefits  claimed  for 
bimetallism  are  trifling  and  insignificant. 

The  preponderance  of  the  disadvantages,  and  of 
the  positive  injuries  which  will  follow  from  the  in- 
troduction of  bimetallism,  over  the  benefits  claimed 
for  it,  is  so  manifest  and  so  great  that  further  com- 
ment is  unnecessary. 


CHAPTER  II 

SYMMETALLISM 

§  i.  MR.  FRANCIS  A.  WALKER,  in  his  work  en- 
titled International  Bimetallism,  page  206,  etc., 
describes  symmetallism  as  follows : 

"  The  views  and  practical  proposals  of  Prof.  Alfred 
Marshall,  as  offered  to  the  Commission,  constitute  one 
of  the  most  important  contributions  to  the  theory  of 
metallic  money  which  have  been  made  during  the  great 
debate.  As  between  gold  monometallism  and  bimetal- 
lism in  its  familiar  form,  Professor  Marshall  is  wholly  on 
the  latter  side.  But  this  eminent  economist  thinks  there  is 
'  a  more  excellent  way. '  What  we  know  as  bimetallism 
he  terms  '  fixed-ratio  mintage,'  denying  it  the  title  bi- 
metallism, which,  in  his  opinion,  '  means  that  the  pay- 
ment of  every  debt  shall  be  effected  by  the  delivery  of 
certain  amounts  of  both  metals,  or  of  paper  which  repre- 
sents them.' *  Professor  Marshall  proposes  the  govern- 
ment issue  of  certificates,  each  certificate  standing  for 
a  certain  amount  of  gold  and  a  certain  quantity  of  silver 
bearing  a  legally  adopted  ratio  to  the  gold.  Were  the 
French  ratio  to  be  taken,  a  certificate  would  stand  for 
one  part  of  gold  and  fifteen  and  a  half  parts  of  silver, 
actually  deposited  and  remaining  in  trust  for  the  redemp- 
tion of  the  certificate,  whenever  desired.  A  money  thus 

1  Herschell's  Commission,  Appendix  to  Final  Report  No.  9705. 
270 


SYMMETALLISM  2/1 

composed,  Professor  Edgeworth  compares  to  a  linked 
bar  of  silver  and  gold.  The  essential  distinction  be- 
tween this  and  French  bimetallism  he  characterizes  as 
follows:  '  The  arrangement  that  there  should  be  a  joint 
demand  for  gold  and  silver  money  might,  perhaps,  be 
called  symmetallism,  to  distinguish  it  from  the  arrange- 
ment that  there  should  be  a  composite  supply,  which  is 
called  bimetallism.'  Professor  Marshall's  proposal  has 
received  much  attention." 

We  may,  possibly,  obtain  a  clearer  understanding 
of  what  Professor  Marshall's  proposal  is,  by  suppos- 
ing that  a  coin  was  actually  coined  out  of  com- 
position of  gold  and  silver,  according  to  an  adopted 
ratio.  Suppose  that  the  ratio  adopted  was  16  of 
silver  to  I  of  gold;  our  gold  dollar  contains  23.22 
grains  of  pure  gold,  and  our  silver  dollar  contains 
37 J A  grains  of  pure  silver;  then  further  suppose 
that  a  new  coin  was  struck  out  of  this  mixture  of 
gold  and  silver,  containing  11.61  grains  of  pure  gold 
and  i85T6^-  grains  of  pure  silver,  and  that  this  coin 
were  christened  "  one  dollar."  This  is  Professor 
Marshall's  proposal,  except  that  he,  instead  of  having 
a  metal  coin  actually  coined,  proposes  that  the  owner 
of  both  silver  and  gold  shall  deposit  that  silver,  and 
gold  in  the  mint,  and  for  every  11.61  grains  of  pure 
gold,  and  iS5T6^  grains  of  pure  silver  so  deposited  he 
shall  receive  a  certificate  to  the  amount  of  one  dollar; 
which  certificate  represents  the  metal  deposited,  and 
is  to  pass  in  the  circulation  as  money  the  same  as 
coins  made  out  of  the  mixture  of  gold  and  silver,  in 
the  same  proportions,  would  pass  in  the  circulation. 

The  advocates  of  symmetallism  base  their  claim 


2/2  SOME   GENERAL  TOPICS 

of  the  superiority  of  their  system  over  bimetallism 
upon  the  two  following  reasons: 

(1)  That  it  will  be  more  permanent,  inasmuch  as 
the  metal  which  tends  to  become  dearer  cannot  be 
withdrawn  from  the  circulation,  as  it  can  under  bi- 
metallism,  and,   under  which  withdrawal  from  the 
circulation,  bimetallism  must  break  down. 

(2)  That  it  will  impart  greater  steadiness  to  the 
value  of  the  standard — that  is,   that   the  value   of 
the  compound  money  of  mixed  gold  and  silver  will 
be  steadier  than  the  separate  gold   dollar  and  the 
separate  silver  dollar  will  be  under  bimetallism. 

Of  course  no  one  should  make  positive  predictions 
as  to  how  any  proposed  system,  particularly  a  mon- 
etary system,  which  has  never  been  tried  even  ex- 
perimentally, will  work  after  its  adoption;  still,  it 
can  do  no  harm,  and  possibly  may  do  some  good,  to 
inquire  somewhat  into  the  probabilities  of  the  per- 
manence, the  advantages,  and  the  disadvantages  of 
the  proposed  system. 

(i)  The  symmetallic  ratio  is  not  a  ratio  of  value 
like  that  of  bimetallism.  The  symmetallic  ratio  is 
a  ratio  of  quantity ;  that  is,  the  law  simply  provides 
that  a  certain  number  of  grains  of  gold,  and  a  certain 
number  of  grains  of  silver  shall  constitute  a  dollar, 
but  makes  no  attempt  to  fix  the  relative  values  of 
these  two  metals  as  it  does  in  bimetallism.  Under 
symmetallism,  then,  each  metal  would  be  governed, 
as  to  its  value,  entirely,  by  its  own  conditions  of 
supply  and  demand. 

If  the  ratio  were  fixed,  say,  at  16  of  silver  to  I  of 
gold,  then  that  would  depreciate  the  dollar  from 


SYMMETALLISM  273 

our  present  standard  from  25  to  30  per  cent.  This 
would  practically  be  repudiation  to  the  extent  at 
least  of  25  per  cent.,  and  even  more,  of  all  debts,  so 
that  to  be  honest  the  proportion  of  silver  to  be  put 
into  the  dollar  would  have  to  more  than  double  16 
to  I.  The  dollar  must  be  made  at  least  of  32  parts 
of  silver  to  I  part  of  gold. 

The  proportions  of  silver  and  gold  which  would 
then  have  to  be  deposited  by  the  holder  in  the  mint 
in  exchange  for  certificates  would  be  thirty-two 
ounces  of  silver  to  one  ounce  of  gold.  This  is  a 
much  greater  proportion  of  silver  to  gold  than  ever 
the  production  of  silver  has  been  to  gold,  and  it  is 
fairly  open  to  question  whether  that  proportion  of 
silver  to  that  of  gold  would  be  brought  to  the  mint 
at  all  to  be  exchanged  for  certificates ;  if  not,  then 
the  system  would  break  down  right  in  the  mint. 

On  the  other  hand,  if  the  proportion  of  silver  to 
that  of  gold  were  made  less  than  the  market  ratio, 
say  at  16  to  I,  the  holder  of  gold  might  refuse  to 
mate  his  gold  with  the  silver  at  that  ratio,  and  hence 
neither  would  be  taken  to  the  mint.  The  weakness 
of  bimetallism  is  that  it  breaks  down  after  it  has 
been  in  operation ;  the  danger  of  symmetallism  is 
that  it  may  break  down  before  it  ever  gets  fairly  into 
operation.  Under  symmetalism  the  coinage  is,  of 
necessity,  limited,  because  the  certificates  could  only 
issue  upon  the  actual  deposit  of  both  silver  and  gold 
at  the  adopted  ratio.  Certificates  could  not  issue 
for  gold  separately,  and  for  silver  separately.  One 
danger  in  the  proposed  system  is  that  a  person  who 
held  silver  alone  might  not  be  willing  to  go  to  the 

18 


2/4  SOME    GENERAL   TOPICS 

expense  of  purchasing  gold  to  mate  with  his  silver 
at  the  mint;  and  so  the  holder  of  gold  alone  might 
not  be  willing  to  incur  the  expense  of  buying  silver 
to  mate  with  his  gold  at  the  mint ;  in  which  case  the 
silver,  or  the  gold,  as  the  case  might  be,  would  not  be 
put  into  circulation  at  all.  As  soon  as  the  holder  of 
silver  was  not  satisfied  with  the  rating  of  silver  in  the 
ratio,  he  would  refuse  to  deposit  his  silver  with  the 
gold,  and  as  soon  as  the  holder  of  gold  was  dissatis- 
fied with  the  rating  of  gold  he  would  decline  to 
deposit  his  gold  with  the  silver,  and  of  course  the 
system  would  break  down  when  there  was  no  longer 
silver  and  gold  deposited  at  the  mint  in  the  propor- 
tions fixed  by  law.  It  will  thus  appear  that  the 
permanence  of  the  system  is  by  no  means  secure. 
Possibly  it  might  turn  out  to  be  more  permanent 
than  bimetallism,  but  it  is  impossible  that  it  might  be 
more  permanent  than  monometallism.  It  is  clear, 
then,  that  symmetallism  would  be  of  no  advantage 
over  our  present  monetary  system  on  account  of 
permanence,  while,  on  the  other  hand,  it  might,  on 
account  of  its  want  of  permanence,  be  a  positive 
disadvantage.  This  leaves  but  the  one  further 
question  to  be  considered  in  our  investigation  : 
whether  it  would  be  advantageous  to  change  our 
present  monetary  system,  and  adopt  symmetallism. 
That  question  is,  the  possible  greater  steadiness  in 
the  value  of  the  standard. 

(2)  If  we  suppose  a  coin  to  be  struck  out  of  the 
compound  of  silver  and  gold,  at  the  ratio  of,  say,  32 
of  silver  and  I  of  gold,  which  coin  was  called  a  dollar, 
then,  if  the  value  of  one  of  the  metals,  silver,  for 


SYMMETALLISM  275 

instance,  declined,  say,  10  per  cent ;  while  the  silver 
would,  in  fact,  have  declined  10  per  cent.,  yet  the 
value  of  the  coin  would  only  fall  5  per  cent.  This 
is  the  principle  under  which  it  operates.  It  spreads 
the  loss  which,  under  separate  coinage,  would  have 
fallen  only  upon  the  silver,  over  both  the  silver  and 
gold;  but  the  calculation  of  just  what  the  joint  de- 
cline in  value  of  both  gold  and  silver  would  be  in  a 
case  of  this  kind,  will  be  found  to  be  very  often  a 
matter  of  much  nicety  and  of  some  practical  diffi- 
culty. The  above  example  assumes  that  the  value  of 
the  32  parts  of  silver  is  exactly  equal  to  the  value  of 
I  part  of  gold  in  gold.  But  suppose  a  case  where  the 
values  of  the  silver  and  gold  in  the  coin  were  different, 
as,  for  instance,  that  a  dollar  were  coined  out  of  1 1.61 
grains  of  pure  gold,  and  185^-  grains  of  pure  silver, 
and  that  the  silver  in  the  dollar  was  only  worth  half 
as  much  as  the  gold  in  the  dollar,  then  the  value  of 
that  dollar  would  only  be  J  as  much  as  our  present 
gold  dollar;  and,  then,  suppose  further,  that  silver 
fell  10  per  cent,  in  value,  and  gold  remained  at  the 
same  value,  then,  though  the  silver  in  the  dollar 
would  have  depreciated  10  per  cent.,  yet  the  value 
of  the  whole  piece  of  money  would  only  have  depre- 
ciated 3^  per  cent.  On  the  other  hand,  if  the  value 
of  silver  had  remained  stationary  and  the  value  of 
gold  fell  10  per  cent.,  then,  though  the  gold  in  the 
dollar  would  have  depreciated  10  per  cent.,  yet  the 
value  of  the  whole  piece  of  money  would  only  have 
depreciated  6J  per  cent.  And  so  the  same  percent- 
age of  change  would  arise  in  case  the  value  of  either 
one  of  the  metals  increased,  and  whatever  the  per- 


276  SOME   GENERAL  TOPICS 

centage  of  the  increase  or  decrease  in  the  value  of 
either  metal  might  be,  the  change  in  the  value  of  the 
whole  coin  would  be  proportionately  the  same  as  are 
given  in  the  above  examples;  but  the  proportionate 
depreciation  of  the  whole  coin  will,  of  course,  de- 
pend upon  which  of  the  metals — the  cheaper  or  the 
dearer — has  declined  in  value,  and  also  upon  the 
relative  values  of  each  of  both  of  the  metals  con- 
tained in  the  coin.  These  examples  exemplify  how 
symmetallism  is  expected  to  make  the  standard 
more  stable,  and  it  will  be  observed  that  it  may  re- 
quire some  quite  abstruse  calculations  to  determine 
what  the  coin — the  dollar —  is  worth  in  gold.  And 
again  it  is  to  be  remembered  that  while  the  change 
in  the  value  of  the  whole  coin  under  symmetallism 
may  not  be  so  great,  as  the  change  in  the  one  metal, 
yet  the  changes  will  occur  much  oftener,  for  the 
value  of  the  coin  would  of  course  change  with  every 
change  in  the  value  of  either  of  the  metals  in  it.  In 
considering  the  expediency  of  adopting  bimetallism, 
symmetallism,  or  any  other  monetary  system,  it 
must  not  be  overlooked  that  gold  is  the  standard  of 
value,  and  will  remain  so  until  the  commercial  world 
sees  fit  to  make  a  change.  Whatever,  then,  the 
monetary  system  may  be,  the  value  of  the  money  in 
use,  and  prices  will  be  rated  in  gold,  and  will  be 
subject  to  the  same  variations  as  the  variations  in 
gold. 

The  simpler  a  monetary  system  is,  the  better  it 
is;  and,  since  gold  is  the  standard  of  value,  the  more 
readily  the  value  of  the  money  in  actual  use  can 
be  ascertained  by  a  simple  comparison  with  the 


SYMMETALLISM  277 

value  of  gold,  the  more  satisfactory  the  system  will 
be.  If  all  the  money  in  use  be  held  at  a  parity  with 
the  money  coined  out  of  the  commodity  which  is  the 
standard  of  value, — gold, — then  the  system  is  in  its 
simplest  form.  The  system  is  then  entirely  har- 
monious, and  there  never  can  be  any  difficulty  in 
ascertaining  the  relative  values  of  other  things,  for 
the  measure  of  value  is  determined  and  fixed  by  the 
value  of  a  given  quantity  of  gold.  The  gold  dollar 
is  a  piece  of  gold  in  which  the  weight  of  pure  gold  is 
23.22  grains.  People  become  accustomed  to  attach- 
ing a  value  to  that  piece  of  gold,  for  the  purpose  of 
comparison  with  the  value  of  other  commodities,  and 
if  every  other  dollar  in  use  were  kept  at  par  with  this 
gold  dollar,  then  the  system  would  be  harmonious; 
there  would  be  no  difficulty  in  referring  other  things 
to  the  value  of  gold,  in  order  to  ascertain  their  price ; 
the  value  of  the  measure  of  value  would  be  as  stable  as 
the  value  of  the  standard  of  value,  and,  so  far  as  the 
influence  of  money  on  prices  is  concerned,  these 
would  be  subject  only  to  the  variations  in  the  value 
of  the  standard.  Now,  of  course  the  symmetallic 
dollar  would  be  referred  to  gold  in  order  to  ascertain 
its  value ;  the  value  of  the  silver  in  that  dollar  would 
be  rated  in  gold.  We  have  seen  that  the  matter  of 
calculating  just  what  the  symmetallic  dollar  is  worth 
in  gold  under  all  possible  conditions  is  rather  diffi- 
cult. At  all  events  it  is  not  simple  by  any  means. 
Consequently,  we  would  not  have,  in  symmetallism, 
a  harmonious  system,  and  it  would  be  a  matter  of 
some  difficulty  to  determine  at  all  times  what  the 
dollar  was  worth  in  gold,  and,  therefore,  there  would 


278  SOME  GENERAL  TOPICS 

be  no  reliable  or  certain  measure  of  value.  This  un- 
certainty of  the  relative  value  of  the  dollar  with 
gold,  and  the  difficulty  of  always  being  able  to  cal- 
culate what  that  relative  value  is,  would  be  a  very 
serious  objection  to  symmetallism,  and  it  would, 
doubtless,  cause  a  very  great  deal  of  inconvenience 
in  the  transaction  of  business,  for  it  would  cause 
great  frequency  in  the  changes  of  prices,  and  the 
extent,  or  what  should  be  the  extent,  of  these 
changes  would  always  be  vexatiously  uncertain.  In 
fact,  the  principle  that  all  the  money  in  use  in  any 
country  should  be  always  kept  at  par  with  the 
standard,  is  so  important  that  it  may  be  said  to  be 
fundamental,  and  the  fact  that  the  symmetallic  dol- 
lar would  not  at  all  times  be  kept  at  a  parity  with 
gold,  would  create  disadvantages,  which  would, 
probably,  outweigh  all  possible  advantages  to  be 
derived  from  the  adoption  of  the  system,  rendering 
its  adoption  of  extremely  doubtful  expediency. 

Another  thought  occurs  in  this  connection,  and 
that  is,  the  possiblity  that  the  proposed  system  will 
unduly  encourage  the  traffic  in  the  precious  metals. 
Say  that  the  ratio  fixed  by  law  were  16  parts  of 
silver  to  I  of  gold,  then  the  owner  of  96  ounces  of 
silver  could  not  have  his  silver  coined,  nor  could  he 
get  certificates  for  it  until  he  deposited  with  his  silver 
6  ounces  of  gold.  This  would  drive  him  into  the 
market  to  buy  gold.  Likewise  the  holder  of  gold 
would  be  compelled  to  purchase  silver  for  the  same 
purpose.  Both  metals  are  used  in  the  arts.  A 
manufacturer  may  require  a  certain  quantity  of  gold ; 
he  could  not  go  to  the  mint  and  purchase  gold  alone 


SYMMETALLISM  279 

with  his  certificates.  He  would  have  to  take  both 
silver  and  gold.  A  debtor  requires  a  certain  amount 
of  gold  to  pay  his  debt,  or  the  interest  on  it.  He 
could  not  procure  this  gold  from  the  government 
without  taking  the  silver  with  it,  and  he  would  have 
no  occasion  at  all  for  the  silver.  Both  the  manu- 
facturer, and  the  debtor,  and,  also,  the  holder  of 
one  of  the  metals  who  desired  to  have  it  coined, 
would  then  be  driven  to  the  bullion  dealer.  Now, 
as  the  bullion  dealer  would  be  compelled  to  take 
into  consideration,  in  determining  his  profits,  the 
contingency  that  he  might  be  left  with  a  stock  of 
the  one  metal  on  hand,  without  any  of  the  other 
metal  to  mate  with  it  at  the  mint,  he  would  be 
forced  to  add  enough  to  his  prices  to  indemnify  him 
against  any  loss  in  respect  of  this  contingency ;  this 
added  to  his  ordinary  profit  would  probably  keep 
the  price  of  bullion  above  that  of  the  money,  and 
the  metal  for  which  there  happened  to  be  the  most 
demand  would  rise  in  its  relative  value  to  the  other 
metal;  and,  in  this  way,  symmetallism,  instead  of 
holding  the  market  values  of  the  two  metals  more 
stable,  might  be  the  means  of  causing  greater,  and 
more  frequent,  variations  in  the  relative  values 
of  the  two  metals  than  there  ever  has  been.  A 
condition  under  which  the  value  of  bullion  is  either 
greater  or  less  than  the  value  of  money  coined  out 
of,  or  based  upon,  it  is  always  unfortunate  and  in- 
convenient, sometimes  even  disastrous.  It  unsettles 
the  measure  of  value,  and,  consequently,  unsettles 
prices.  The  expediency  of  adopting  symmetallism 
may  be  considered  under  various  other  aspects,  but 


28O  SOME  GENERAL  TOPICS 

I  think  the  foregoing  considerations  are  sufficient  to 
cause  one  to  hesitate  before  adopting  the  system. 

Changing  a  monetary  system  after  it  has  once  be- 
come established  and  thoroughly  understood  by  the 
people  is  a  serious  business  indeed,  and  should  never 
be  resorted  to  unless  a  decided  benefit  were  certain 
to  follow,  and  the  benefits  should  be  great  enough  to 
far  outweigh  even  the  temporary  disadvantages 
caused  by  the  change.  The  foregoing  considera- 
tions would  at  least  seem  to  show  that  the  introduc- 
tion of  symmetallism  would  not  bring  with  it  enough 
advantages  to  compensate  for  its  disadvantages. 


CHAPTER  III 

OF  THE  TABULAR  STANDARD  OF  VALUE 

§  I.  FROM  time  immemorial  political  economists 
have  discussed  the  evils  of  the  variations  in  the 
values  of  the  precious  metals,  and  their  unsuitability, 
on  this  account,  for  use  as  either  a  measure,  or  stand- 
ard, of  value.  Many  different  schemes  have  been 
proposed,  and  the  adoption  of  many  different  kinds 
of  standards  has  been,  from  time  to  time,  suggested, 
but  the  one  which  at  present  seems  to  be  regarded 
with  the  most  favor  is  that  spoken  of  by  Professor 
Jevons  in  his  work,  Money  and  the  Mechanism  of 
Exchange,  page  328,  etc.,  as  Lowe-Scrope  Tabular 
Standard  of  Value.  Mr.  Jevons  explains  this 
standard  as  follows: 

"  To  carry  Lowe's  and  Scrope's  plans  into  effect,  a 
permanent  government  commission  would  have  to  be 
created,  and  endowed  with  a  kind  of  judicial  power. 
The  officers  of  the  department  would  collect  the  current 
prices  of  commodities  in  all  the  principal  markets  of  the 
kingdom,  and,  by  a  well-defined  system  of  calculations, 
would  compute  from  these  data  the  average  variations  in 
the  purchasing  power  of  gold.  The  decisions  of  this 
commission  would  be  published  monthly,  and  payments 
would  be  adjusted  in  accordance  with  them.  Thus,  sup- 
pose that  a  debt  of  one  hundred  pounds  was  incurred  upon 

281 


282  SOME   GENERAL  TOPICS 

the  ist  of  July,  1875,  and  was  to  be  paid  back  on  the  ist 
of  July,  1878;  if  the  commission  had  decided  in  June, 
1878,  that  the  value  of  gold  had  fallen  in  the  ratio  of  106 
to  100  in  the  intervening  years,  then  the  creditor  would 
claim  an  increase  of  six  per  cent,  in  the  nominal  amount 
of  the  debt. 

"  At  first  the  use  of  this  national  tabular  standard 
might  be  permissive,  so  that  it  could  be  enforced  only 
where  the  parties  to  the  contract  had  inserted  a  clause 
to  that  effect  in  their  contract.  After  the  practicability 
and  utility  of  the  plan  had  become  sufficiently  demon- 
strated, it  might  be  made  compulsory,  in  the  sense  that 
every  money  debt  of,  say,  more  than  three  months' 
standing,  would  be  varied  according  to  the  tabular  stand- 
ard, in  the  absence  of  an  express  provision  to  the  con- 
trary. ' ' 

Mr.  Francis  A.  Walker  gives  a  complete  descrip- 
tion of  the  scheme  in  his  work  entitled  Money, 
Trade,  and  Industry,  page  70  et  seq. ,  as  follows : 

"  The  schemes  particularly  referred  to  are  those  of 
Messrs.  Lowe  and  Scrope  in  England,  and  of  Count 
Soden  and  Professor  Roscher  in  Germany,  which  all 
propose,  under  different  forms  and  conditions,  a  Tabular 
Standard,  or  Multiple-Tender,  in  which  the  value-varia- 
tions of  a  considerable  number  of  articles  of  general 
consumption  and  of  prime  importance  in  the  economy 
of  daily  life — corn,  beef,  potatoes,  wool,  cotton,  tea, 
coffee,  sugar,  timber,  iron,  coal,  etc. — shall  be  trusted 
to  compensate  each  other,  with  the  result  of  a  high  de- 
gree of  stability  in  the  whole  body  so  composed.  The 
articles  selected  should  be  taken  in  definite  quantities, 
and  all  of  standard  quality.  An  arbitrary  name  might 


THE  TABULAR  STANDARD  OF  VALUE    283 

be  given  to  a  Unit  of  this  measure,  which  would  embrace 
a  certain  number  of  pounds,  bushels,  or  yards  of  each 
one  of  the  articles  on  the  list.  Any  person  selling  a 
house  or  a  farm  might  then  fix  the  price  at  so  many  of 
these  Units,  corresponding  to  the  present  value  of  a  bill 
of  goods  of  such  commodities,  in  such  quantities. 

"  The  seller  would  thus  be  assured  of  being  placed  at 
the  end  of  the  term  of  credit  in  substantially  the  same 
position  as  if  he  had  been  paid  at  the  time  of  the  pur- 
chase. If  one,  three,  or  five  of  the  articles  taken  should 
be  found  to  have  risen  in  value  in  the  interval,  others, 
doubtless  as  many,  would  be  found  to  have  fallen,  and 
in  the  aggregate  to  an  equal  extent.  Exceptional  causes, 
over  so  large  a  field  of  operations,  would  practically 
offset  each  other,  with  a  result  of  complete  justice,  as  be- 
tween the  two  parties  to  the  contract. 

' '  But  as  it  might  be  inconvenient  to  the  non-commercial 
creditor  to  receive  ten  years,  hence,  a  number  of  cart-loads 
of  goods  of  one  or  two  score  of  kinds,  representing  the 
animal,  the  vegetable,  and  the  mineral  kingdom,  and  to 
be  obliged  to  dispose  of  these  for  himself,  it  should  be 
stipulated  that  the  debt  should  be  paid  in  current  money 
— 'gold,  silver,  or  paper — in  such  amount  as  would  at 
then  current  prices  purchase  the  bill  of  goods  which  had 
been  taken  as  the  measure  of  the  claim  of  the  creditor, 
of  the  obligation  of  the  debtor. 

"  Of  course,  for  the  satisfactory  carrying  out  of  such 
a  scheme,  the  sanction  of  government  would  be  required. 
Commissioners  would  have  to  be  appointed  who  should 
be  empowered  to  make  periodical  publication,  quarterly 
or  monthly,  of  the  prices  of  the  several  articles  taken  for 
this  purpose,  according  to  the  rates  prevailing  in  the 
principal  or  representative  markets  of  the  country.  Such 
publication  would  embrace  a  computation  of  the  value 


284  SOME   GENERAL  TOPICS 

in  money  of  the  Unit  of  the  multiple-tender — that  is,  the 
commissioners  would  announce  that  so  many  pounds, 
bushels,  or  yards  of  the  commodities  on  the  list  were 
worth  at  date  so  many  ounces  of  silver  or  gold,  or  so 
many  dollars  of  paper  money.  All  payments  falling  due 
within  the  quarter,  or  the  month  succeeding,  would  be 
made  in  money,  according  to  the  terms  of  the  announce- 
ment. 

"  To  illustrate  the  operation  of  this  scheme,  let  us 
suppose  that  in  1869  I  sold  my  house  or  farm  on  a  credit 
of  ten  years.  The  price  of  the  property,  as  reached  in 
the  negotiation  between  the  buyer  and  myself,  was  $6000. 
But  instead  of  his  giving  me  his  note  for  $6000,  we 
looked  together  at  the  official  published  list  of  prices 
for  the  multiple-tender,  and  found  that  the  value  of  the 
Unit,  embracing  so  much  of  each  of  so  many  articles, 
was  at  the  time  $12.  The  note  was  thereupon  given 
for  500  units  of  the  multiple-tender. 

"  On  the  note  coming  due  the  present  year,  my  debtor 
and  myself  would  refer  to  the  last  list  published,  dated 
just  ten  years  after  the  one  which  formed  the  basis  of 
the  contract;  and  we  should  probably  find  that  the  value 
of  the  unit,  in  current  money,  was  now  higher  or  lower, 
say  $11  or  $13.  That  is,  the  same  amount  of  the  same 
articles  could  be  purchased  for  one  or  the  other  of  these 
sums,  which  could  have  been  purchased  for  $12  when 
the  note  was  given. 

;'  The  announcement  is  official,  conclusive.  No  con- 
troversy is  possible  between  us.  The  computations  re- 
quired are  no  more  elaborate  than  those  involved  in  casting 
up  the  semi-annual  interest.  I  receive  $5500  or  $6500 
in  money,  according  as  its  value  now  is,  and  the  transac- 
tion is  closed.  The  effect  of  the  introduction  of  the 
tabular  standard  has  been  to  put  me  precisely  where  I 


THE  TABULAR  STANDARD  OF  VALUE    285 

should  have  been  had  I  received  payment  at  the  time  of 
purchase.  I  get  no  more,  no  less,  by  changes  in  the 
value  of  any  article.  I  am  no  worse  off  by  reason  of 
having  given  credit.  On  the  other  hand,  the  purchaser 
has  had  all  the  legitimate  advantage  of  receiving  credit 
without  deriving  any  unjust  advantage  thereby,  or  being 
subjected  to  any  penalty  therefor,  beyond  the  payment 
of  the  stipulated  interest.  He  has  no  chance  to  get  the 
house  or  the  farm  at  last  by  paying  me  what  is  worth  only 
half,  or  two  thirds,  what  it  was  worth  ten  years  ago;  and 
he  is  likewise  relieved  from  all  danger  of  being  required 
to  pay  me  a  third  or  a  half  more  than  he  had  reason  to 
expect,  through  a  change  in  the  purchasing  power  of 
money  which  he  could  neither  control  nor  foresee." 

Mr.  Walker  concludes  that  this  scheme  would 
be  of  great  benefit  in  case  of  long-standing  obliga- 
tions or  permanent  investments,  and  would  be  a 
grea"t  protection  to  those  who  depend  upon  such 
investments  for  their  livelihood,  to  trustees,  guard- 
ians, savings  banks,  and  charitable  institutions, 
having  money  to  invest,  etc.  But,  on  account  of 
the  uncertainty  of  the  amounts  which  might  be  due 
when  the  time  of  payment  arrived,  would  not  answer 
so  well  in  short-time  obligations  used  in  the  conduct 
of  active  business  operations. 

The  scheme  does  not  contemplate  the  disuse  of 
money.  Money  is  to  be  used  for  payment  and  also 
as  a  measure  of  value,  after  its  introduction  the  same 
as  it  was  before.  The  fact  that  gold  would  still,  in 
any  event,  remain  the  standard  of  value  must  not  be 
lost  sight  of.  After  the  introduction  of  this  tabular 
standard  prices  would  still  be  liable  to  all  the  fluctua- 


286  SOME   GENERAL  TOPICS 

tions  which  may  be  caused  by  changes  in  the  value 
of  the  measure  of  value,  or  by  changes  in  the  value 
of  the  standard  of  value,  or  by  changes  in  the  con- 
ditions of  supply,  demand,  etc.,  relating  to  commo- 
dities themselves.  Nothing  would  be  changed  in 
these  respects.  The  only  point  where  there  would 
be  any  difference  would  be  in  the  amount  which 
might  be  required  to  discharge  a  debt.  It  relates 
wholly  to  payment,  and  the  proposed  system  is  not 
properly  called  a  standard  of  value.  It  is  not  a 
standard  of  value.  The  standard  and  the  measure 
of  value  remain  the  same  as  before.  If  this  so-called 
tabular  standard  of  value  is  a  standard  at  all,  it  is  a 
standard  by  which  to  compute  the  amount  which 
may  be  required  to  pay  a  debt,  and  it  relates  entirely 
to  the  consideration  of  the  contract,  that  is,  to  the 
amount  required  to  be  paid  by  the  debtor  to  dis- 
charge him  from  liability  under  his  contract.  The 
price  of  the  goods,  however,  for  the  purchase  of 
which  the  debt  was  contracted,  would  be  measured 
or  expressed  in  terms  of  money,  according  to  the 
standard  of  value  just  as  they  now  are. 

In  considering,  therefore,  whether  it  is  worth  while 
to  adopt  any  such  system,  it  is  to  be  borne  in  mind 
that  the  change  and  the  only  change  it  can  effect  is 
to  regulate,  in  a  manner,  the  amount  of  money  to 
be  paid  in  discharge  of  debts.  It  is,  simply,  a 
scheme  for  the  liquidation  of  debts. 

There  are,  of  course,  some  difficulties  in  the  way, 
which  must  be  provided  against  before  the  scheme 
could  be  successful  in  its  operation.  The  first  thing 
which  would  have  to  be  settled  would  be  the  number 


THE  TABULAR  STANDARD  OF  VALUE    287 

of  articles,  and  the  particular  articles  which  should 
be  placed  upon  the  list.  This  would  not  be  readily 
determined;  and  no  assurance  could  be  given  that 
there  would  be  no  changes  made,  some  articles 
stricken  out,  and  others  inserted  or  added.  The 
agitation  for  a  change  would  be  constant,  and  both 
creditors  and  debtors  would  either  find  their  con- 
tracts constantly  changed,  or  would  be  kept  in  per- 
petual dread  of  the  contract  being  changed  to  the 
injury  of  one  or  the  other.  It  is  doubtful  whether, 
on  the  whole,  the  proposed  system  would  be  as 
satisfactory  as  the  present  one. 

The  danger  of  counterfeiting  the  report  of  the 
Commissioners,  or  rather  of  publishing  false  reports, 
would  be  very  great,  and  would  be  the  means  of 
working  a  great  deal  of  mischief. 

Any  corruption  in  the  Board  of  Commissioners 
would  be  most  serious  in  its  consequences,  and  it 
can  be  readily  imagined  that  some  debtors  or  some 
creditors  could  well  afford  to  pay  out  a  considerable 
sum  to  have  a  showing  of  increased  or  decreased 
prices  and  units  during  a  particular  month  or  quar- 
ter. And  these  commissioners'  reports  could  readily 
be  manipulated  by  any  one  who  was  an  expert  in 
juggling  with  figures. 

There  would  be  trouble  in  agreeing  upon  a  mode 
of  calculating,  or  of  arriving  at,  the  average  of  the 
general  prices  of  the  articles  on  the  list.  One  school 
of  economists  would  insist  upon  doing  it  one  way, 
and  another  school  would  insist  upon  doing  it  in 
another  way.  It  is  to  be  feared  that  there  would 
really  be  more  agitation  among  economists  on  the 


288  SOME    GENERAL   TOPICS 

method  of  calculation  under  the  tabular  system, 
than  there  has  been,  and  at  present  is,  among  them 
on  the  question  of  bimetallism  and  monometallism ; 
and  the  differences  of  opinion  would  certainly  be  as 
great. 

Supposing  all  these  difficulties  got  out  of  the  way, 
the  question  as  to  the  dissemination  of  the  report  of 
the  Commissioners  among  the  people  requires  con- 
sideration. How  is  it  to  be  done,  in  order  that  it 
may  reach  every  person  who  wishes  to  sell  or  buy  or 
who  has  to  pay  or  receive  a  debt  ?  It  seems  to  me 
that  this  is  a  practical  difficulty  which,  of  itself,  will 
make  the  successful  operation  of  the  scheme  ex- 
tremely doubtful.  How  is  the  government  to  send 
this  report  to  every  person  who  requires  it,  or,  how 
is  it  to  distribute  the  reports  in  such  a  manner  as  to 
enable  every  person  who  may  have  occasion  to  use 
them,  to  see  them  ?  Is  a  person  every  time  he 
makes  a  sale  or  purchase,  or  pays  or  receives  a  debt 
to  run  to  the  post  office,  either  in  a  city  or  in  a  rural 
district,  before  he  makes  the  sale  or  purchase,  or 
pays  or  receives  the  debt  ?  This  would  be  an  in- 
tolerable burden  and  clog  to  business.  Business 
could  not  be  said  to  be  free  under  any  such  system. 

In  case  of  a  dispute  between  parties,  how  is  the 
report  of  the  Commissioners  to  be  proved  to  make  it 
evidence  ?  Newspaper  reports  could  not  be  accepted. 
True,  the  law  might  provide  a  mode  of  proof,  but 
what  will  this  mode  of  proof  be  ?  That  is  the  im- 
portant question.  By  analogy  the  evidence  of  the 
report,  and  the  only  evidence,  would  be  a  duly  cer- 
tified copy  of  the  report.  Making  certified  copies 


THE  TABULAR  STANDARD  OF  VALUE    289 

of  these  reports  for  use  in  actions  at  law  or  in  equity, 
from  Maine  to  Texas,  and  from  the  Atlantic  to  the 
Pacific,  might  furnish  employment  to  a  great  many 
clerks  in  the  Commissioners'  office,  but  it  would  be 
mighty  expensive  and  inconvenient  for  the  people 
in  the  transaction  of  their  business.  Of  course  some 
other  mode  of  proof  might  be  provided  for,  but  any 
mode  which  would  be  a  wide  departure  from  the 
established  rules  of  evidence  in  regard  to  the  proof 
of  public  documents  would  be  attended  with  grievous 
forgeries,  frauds,  and  perjuries.  It  is  a  fair  question 
whether,  even  considering  this  point  alone,  the 
system  would  not  do  more  harm  than  good. 

How  is  any  government,  national,  state,  munici- 
pal, or  any  other  subdivision,  to  estimate  the  prob- 
able expenditures,  and  fix  the  amount  of  its  estimates 
and  its  levy  of  taxes  ?  Under  this  proposed  system 
the  amount  which  it  will  be  entitled  to  collect  when 
the  time  for  the  collection  of  taxes  arrives  may  be 
entirely  different  from  the  amount  of  the  tax  levy. 
Public  business  could  not  be  transacted  under  such 
changing  circumstances.  There  are  uncertainties 
and  deficiencies  enough  now,  without  adding  to  the 
difficulties  by  rendering  everything  uncertain. 

Of  course  it  will  very  rarely  happen  that  a  person 
wants  just  the  exact  quantity  of  all  the  various 
articles  on  the  list  upon  which  prices  and  the  Unit 
are  computed.  The  person  may  be  a  dealer  in  some 
article  not  on  the  list,  or  he  may  be  a  dealer  in  but 
one  of  the  articles  on  the  list.  Suppose  he  is  a 
dealer  in  pork,  and  the  report  of  the  Commissioners 

would  show  a  fall  in  general  prices  of  ten  per  cent., 
19 


2QO  SOME   GENERAL  TOPICS 

but  pork  had  not  fallen  in  price,  or  had  actually 
raised  in  price.  The  dealer  in  such  a  case  would 
only  collect  $90  on  a  debt  of  $100  due  to  him;  he 
would  therefore  be  out  $10,  if  he  wished  to  invest  in 
pork. 

The  system  would  throw  great  obstacles  in  the 
way  of  a  man  keeping  proper  books  of  account ;  nor 
could  the  business  man  at  any  time  have  a  reliable 
balance  sheet  made  up  in  order  to  determine  what 
his  profits  had  been,  or  what  his  standing  really  was, 
for  the  simple  reason  that  he  never  could  tell  what 
amount  he  would  realize  on  debts  owing  to  him  or 
what  he  might  have  to  pay  on  debts  owing  by  him. 
A  dealer  might  be  compelled  to  raise  or  lower  his 
prices  every  month.  These  uncertainties  would 
render  the  business  situation  intolerable.  A  bank 
could  form  no  estimate  of  its  assets  to  make  them 
available.  It  would  never  know  how  much  it  may 
have  to  pay  its  depositors,  and  it  could  never  esti- 
mate how  much  it  would  collect  on  its  commercial 
paper.  It  is  not  at  all  likely  that  the  system  ever 
would  be  adopted  in  business  generally. 

Besides,  the  system  would  not  on  all  occasions  do 
exact  justice  between  a  creditor  and  his  debtor,  even 
in  cases  of  long-deferred  payments,  such  as  long- 
time-running bonds.  In  these  cases  the  interest  is 
usually  made  payable  semi-annually.  Under  what 
system  would  the  interest  be  payable  ?  If  under 
the  present  system,  then  the  debtor  would  always 
have  the  same  amount  to  pay ;  if  under  the  tabular 
standard  the  debtor  would  not  know  what  he  had  to 
pay  nor  the  creditor  what  he  had  to  receive  until 


THE  TABULAR  STANDARD  OF  VALUE    29 1 

the  time  of  payment  came.  Actual  experience 
alone  is  probably  the  only  thing  which  would  deter- 
mine which  system  would  be  most  advantageous  for 
both  parties;  but  one  thing  is  certain,  and  that  is, 
the  results  of  the  system  if  adopted  would  not  all 
be  advantages;  it  would  probably  bring  with  it  a 
train  of  disadvantages  at  least  equal  to  the  advan- 
tages. The  system  might,  too,  work  great  injustice 
in  many  cases  whether  of  long  or  short  credits.  Of 
necessity  the  Commissioners'  table  or  report  which 
would  be  used  in  one  month,  would  be  the  aver- 
age general  prices,  and  the  Unit  computed  there- 
from, for  the  previous  month  or  quarter.  Prices 
change  very  rapidly  at  times,  and  when  the  time  of 
payment  arrived  in  any  given  month  or  quarter,  it 
might  be,  and  probably  often  would  be,  that  the 
general  average  of  prices  and  the  Unit  had  in  fact 
been  greatly  changed.  Suppose  the  time  of  pay- 
ment be  on  the  3Oth  day  of  April;  the  payment 
would  be  made  according  to  the  Commissioners'  re- 
port of  the  month  of  March;  on  the  ist  of  May  the 
Commissioners  make  another  report  showing  a  rise 
or  a  fall  of  general  prices  of  15  per  cent,  during  the 
month  of  April.  In  such  a  case  either  the  creditor 
or  the  debtor  will  lose  15  per  cent. 

Other  objections  to  the  proposed  system  suggest 
themselves,  but  the  foregoing  are  sufficient  to  show 
that  it  will  be,  if  adopted,  of  very  doubtful  utility. 

I  am  unable  to  see  the  great  injustice  of  the 
present  system  ;  at  least  in  cases  of  the  sale  and  pur- 
chase of  commodities,  and  even  of  a  house  or  a  farm. 

The  owner  of  a  commodity,  horses,  for  instance, 


2Q2  SOME   GENERAL   TOPICS 

agrees  to  exchange  them  with  the  buyer  for  another 
commodity,  gold,  to  be  paid  or  delivered  at  some 
future  time.  Why  should  he  not  take  his  chances 
upon  the  appreciation  or  depreciation  of  the  com- 
modity, gold,  which  he  is  to  receive  ?  A  agrees  to 
purchase  one  hundred  head  of  horses  from  B  at  a 
certain  price,  to  be  delivered  at  the  end  of  one  year 
from  the  date  of  the  contract,  the  consideration  to 
be  paid  upon  delivery  of  the  horses.  Delivery  of 
the  horses  is  tendered  in  due  time  under  the  contract. 
Now  the  purchaser  is  bound  either  to  accept  and 
pay  for  the  horses  at  the  contract  price,  even 
though  horses  may  have  fallen  greatly  in  value  in 
the  meantime,  or  to  respond  in  damages  to  the 
seller  for  the  violation  of  the  contract.  Likewise 
the  seller,  B,  is  bound  to  deliver  the  horses  at  the 
price  under  his  contract  even  though  the  price 
of  horses  may  have  greatly  increased  in  the  mean- 
time, or  else  he  must  respond  in  damages  to  A  for 
the  violation  of  the  contract.  These  are  risks  which 
parties  run  on  all  contracts  for  the  future  delivery  of 
commodities,  and  I  fail  to  see  wherein  there  is  any 
great  injustice  in  the  same  risk  under  a  future  con- 
tract for  the  delivery  of  the  commodity  gold.  In 
fact,  I  can  see  no  difference  in  this  respect  between 
a  contract  to  deliver  horses  in  the  future,  and  a  con- 
tract to  deliver  gold  in  the  future.  Now  this  tabular 
standard  system  proposes  that  in  the  case  of  a  con- 
tract for  the  future  delivery  of  gold,  the  creditor 
shall  receive  an  amount  of  gold  which  will  enable  him 
at  the  time  of  payment  to  purchase  the  same  quan- 
tities of  the  goods  contained  in  a  particular  list  as 


THE  TABULAR  STANDARD  OF  VALUE    293 

•could  have  been  purchased  for  the  amount  of  the 
debt  at  the  time  it  was  created.  That  is,  if  the  aver- 
age prices  had  fallen  or  raised  10  per  cent,  in  the 
meantime,  and  the  debt  was  originally  $500,  the 
creditor  must  be  satisfied  with  $450  or  $550.  But, 
if  the  100  head  of  horses  had  been  sold  at  $100  a 
head,  or  $10,000  for  all,  and  horses  had  in  the  mean- 
time fallen  10  per  cent,  in  price,  the  purchaser 
would  not  be  entitled  to  1 10  head  of  horses  for  the 
$10,000,  and,  if  the  price  of  horses  had  risen  10  per 
cent.,  the  seller  could  not  discharge  himself  from 
liability  under  his  contract,  nor  could  he  claim  the 
$10,000  on  the  delivery  of  but  90  horses.  In  this 
case  the  parties  are  bound  to  accept  and  pay  accord- 
ing to  their  contract,  no  matter  how  much  the  price 
of  horses  may  have  changed  meanwhile.  Why 
should  not  dealers  be  compelled  under  the  law  to 
take  the  same  risks  on  the  appreciation  or  deprecia- 
tion of  money  that  they  are  compelled  to  take  in 
contracting  for  other  commodities  ?  In  the  case  of 
the  contract  for  horses,  the  parties  would  not  be  put 
in  the  same  position  they  would  have  been  had  it 
been  a  cash  sale  at  the  time  the  contract  was  made, 
and  the  injustice  in  making  either  one  of  the  parties 
take  more  or  less  is  just  as  great  as  if  there  had  been 
an  actual  change  in  the  value  of  gold,  caused  by  its 
own  conditions  of  supply  and  demand. 

For  my  part,  unless  some  one  can  show  me  some 
advantages  expected  to  follow  the  adoption  of  the 
tabular  standard,  which  have  not,  so  far,  been  de- 
veloped, I  cannot  see  that  it  is  worth  while  to  adopt 
that  system. 


INDEX 


PAGES 

Account,  Books  of,  germ  of  the  credit  system        .         .         .191 
Instruments  of  credit     .  ......       187 

Payments  by   .........       191 

Advantages,  alleged,  of  bimetallism        .         .         .         128,  159,  253 
Alleged,  of  symmetallism         .....         272-276 

Alleged,  of  tabular  standard  of  value       .          .         .        281-285 

Andrews,  E.  Benj.,  on  appreciation  of  gold    .         .         .         117-128 

Appreciation  of  Gold,  bimetallists  charge  all  falls  of  prices  to,  no,  117 

Chapter  on       ........         109-166 

E.  Benj.  Andrews  on       ......         117-128 

Francis  A.  Walker  on      ......         111-117 

M.  Cernuschi  on      ........       165 

Synonymous  with  fall  of  prices         .         .          in,  117  etc.,  125 

What  it  is 109,  no 

Aristotle,  history  of  money  by         ......  3 

Arts,  use  of  precious  metals  in,  is  consumption       ...         88 
Assignats,  French,  depreciation  of  .....       183 

Atkinson,  Edward,  criticised  by  F.  A.  Walker        .         .        114,  140 

Bank,  checks  on,  defined       .......       196 

Instruments  of  credit         .         .         .         .         .         '.187 

Use  of 196 

Deposits,  how  made  and  used  .....         196-202 

Instruments  of  credit         ......       187 

How  credit  is  utilized  by  and  in       ....         196-202 

Instrument  of  credit         .......       187 

Mode  of  business  in  a  .         .         .         .         .         196—202 

National,  notes  of,  not  a  legal  tender       ....         33 

secondary  money  .         .         .         .         .         .     i,  13 

Of  Genoa         .........         22 

Of  Hamburg   .........         22 

Of  Venice 22 

Through  it  credits  are  set  off  and  applied  to  debits  .         196-202 
What  it  is        .........       196 

Barter,  business  done  on  credit  is  a  phase  of  .         .          .         .       187 

Inconvenience  of     .   -      .         .         .         .         .         .         .  4 

Earth,  Dr.,  quoted  by  Mr.  Andrews  on  fall  of  prices      .         .       118 
Belgium,  member  of  the  Latin  Union     .....         84 

{See  Latin  Union.) 

295 


296  INDEX 

PAGES 

Bilans,  accounts  made  by  merchants  attending  payments  at 

the  fairs  in  the  Middle  Ages          .....       206 

Bills  of  Exchange,  are  instruments  of  credit    .         .         .         .187 

Defined  ..........       195 

Use  of     .........        195,  196 

Bimetallism,  chapter  on  .         .         .         .         .         .         .213 

Alleged  advantages  of  .         .         .         .         128,  159,  253 

Auxiliary  conditions  of    .......       227 

Benefits  claimed  for          .         .         .         .         .         .         .253 

Conditions  essential  to     .......       214 

auxiliary  to   ........       227 

Contradiction  in  the  theories  of        .....       262 

Disadvantages  of      ........       268 

Essential  conditions  of     .         .         .         .         .         .         .214 

In  England      .........       227 

In  France         ........        228,  234 

International  ........        213,  248 

In  United  States 228 

Mr.  E.  Benj.  Andrews  on  .         .         .         .         .128 

Mr.  Francis  A.  Walker  on       .....        237,  254 
National.         .........       213 

Bimetallist,  honest  dollar  of    .         .         .         .         .         .         .       160 

Inconsistent  and  contradictory  theories  of         ...       262 
On  appreciation  of  gold  ....  111-117,117-128 

Theory  of,  generally        .         .         .         .         .         .        213,  etc. 

Books  of  Account,  are  instruments  of  credit    ....       187 

Germ  of  the  credit  system         ......       191 

Settlements  by          ........       191 

Bosanquet,  Mr.,  reply  to,  by  Ricardo     .         .         .  Part  I.,  chap.  iv. 

Broken  Par  of  Exchange,  alleged  that  demonetization  of  silver 

caused          .........       253 

Alleged  that  bimetallism  can  restore         ....       254 

Bimetallism  cannot  restore       .         .          .         .         .         .254 

Disadvantages  of,  greatly  magnified         ....       254 

Bullion,  coin  can  readily  be  converted  into      .         .         .         .         12 

Coin  when  exported  is     .......         86 

Is  same  commodity  as  coined  metal  ....     3-12 

Is  uncoined  metal    ........  2 

Of  the  same  value  as  the  same  weight  of  coin  ...         85 

Bullion  Committee  Report  on  standard  of  value      ...         40 

Cattle  used  as  money    ..       .         .         .         .         .         .         .  5 

Cernuschi,  M.,  on  appreciation  of  gold  and  fall  of  prices         .  165 

On  the  standard  of  value 41 

Certificates,  Silver,  are  not  legal  tender  33 

What  they  are        ........  2 

Checks,  bank,  are  instruments  of  credit           ....  187 

Definition  and  use  of       .......  196 

Circulation,  depreciated  money  causes  the  undepreciated  to 

be  withdrawn  from 87,  239,  250 


INDEX  297 

PAGES 

Circulation,  Money  in,  is  always  for  sale  or  exchange      .  87,  89 

What  is  meant  by  being  in        .....  87,  89 

Clearing-House,  clearings  through,  similar,  in  some  of  their 

features,  to  payments  at  fairs  in  the  Middle  Ages         .       208 
Effect  of  operations  through    .         .         .         .         .         .212 

Instrument  of  credit         .         .         .         .         .         .187,  203 

Mr.   Horace  White's  description  of  the  New  York,  and 

manner  of  transacting  business  at  .         .         .       208 

Operations  in  .........       208 

Theory  of,  is  old 203 

Cod,  Dried,  used  as  money     .......  5 

Coin,  can  readily  be  converted  into  bullion     .         .         .         .         12 

Is  of  same  value  as  same  weight  of  bullion       ...         85 
Is  same  commodity  as  uncoined  metal      ...      2  etc.,  88 
Is  stamped  metal     ........  2 

Weights  of  the  different  gold  coins  .....         32 

When  exported  is  bullion          ......         87 

When  in  circulation  is  always  for  sale  or  exchange  .         .         89 

Coinage,  adds  nothing  to  the  value  of  the  metal      .         .         .  85,  86 

History  of        .........  6 

Merely  certifies  the  weight  and  fineness  of  piece  of  metal 

stamped    .........  6 

Metal  remains  same  commodity  after,  that  it  was  before,  2  etc. .  88 
Restricted,  of  silver  in  Germany  and  States  of  the  Latin 

Union  in  1873  .......       102 

Colonial  Paper  Money,  depreciation  of  .         .         .         .         .       183 

Colwell,  Stephen,  on  payments  at  the  fairs  at  Lyons        .         .       208 
Commodity,  money  is     ........         14 

I  s  the  same  commodity  after  coinage  that  it  was  before.  2 

Common  Consent,  money  adopted  by      .         .         .         .         .         15 

Standard  of  the  measure  of  value  adopted  by    .         .         .         37 
Compensatory  Action,  by  which  bimetallists  claim  the  market 
ratio  between  silver  and  gold  is  held  at  the  legal  ratio, 

218,  224-226,  246,  261 
Composite  Mass,  not  proper  to  regard  silver  and  gold  as  being 

in 92,  259 

Consideration,  money  a  good,  to  support  contracts  ...         21 
Consumption,  is  the  end  of  production    .....         88 

Only  a  demand  which  takes  a  commodity  out  of  commerce 

is  a  demand  for         .         .         .         .         .         .         .  88,  89 

Using  the  precious  metals  AS  money  is  not  a  consumption 

of  them  ........         89 

Continental  Paper  Money,  depreciation  of  .         .         .       183 

Origin  of  the  phrase  "  Not  worth  a  continental  "      .         .       184 
Contracts,  money  a  good  consideration  to  support    ...         21 
No  difference  between  a  contract  to  deliver  money  and 

one  to  deliver  any  other  commodity  ....       291 

Contradictory  Theories  of  Bimetallism    .....       262 

Convertible  Paper  Money,  what  it  is  .         .         .         .         30 

Copper  standard  of  value  of  the  Romans         ....         37 


298  INDEX 

PAGES 

Copper  used  as  money  by  the  Romans    .....  6 

Credit,  as  affecting  prices 75~79 

As  a  money  saver     ......         115,  121,  186 

Different  senses  in  which  the  word  is  used  in  commerce,  154,  186 
Is  borrowing  and  a  phase  of  barter  .         .         .         .         .187 

Large  amount  of  business  transacted  by  the  use  of    .          .       186 
Misconceptions  in  the  use  of  the  word      .         .         .         .154 

Not  dependent  upon  the  quantity  of  money     .         .         .189 

What  it  is 154,  186,  188 

Credit  System,  as  a  means  of  payment    .         .         .         .        155,  1 86 

Book  accounts  germ  of     .         .         .         .         .         .         .191 

Credits  applied  by  it  to  the  extinguishment  of  debts          .       186 
Instruments  of         ........       187 

Large  amount  of  business  transacted  by,  without  the  use 

of  money  ........       186 

Payments  through  books  of  account          .         .         .         .       191 

at  the  fairs  in  the  Middle  Ages      ....       205 

through  banks        ......         196-202 

through  clearing-house  .         .         .         .         .         .212 

What  it  is  186-188 


Day  of  Judgment,  Mahomet's  description  of  .         .         .         .       203 
The  good  is  there  to  be  set  off  against  the  evil  .         .       204 

Debased  Money,  causes  undebased,  to  be  withdrawn  from  the 

circulation 86,  87,  178 

Effect  of  the  standard  of  value  on    .         .         .         .         .         50 
Hallam  on        ........'.       175 

Macaulayon 176-178 

Raises  prices 175,178,181,182 

Ricardo  on       ........         169-174 

in  contradiction  of  his  former  statements        .         181-183 

Shaw,  W.  A.,  on 178-180 

Demand  (alleged),  created  by  the  bimetallic  compensatory  ac- 
tion or  economic  force  .          .         .         218,  224-226,  246 
Monetary,  for  the  precious  metals  does  not  increase  their 

value  (chapter  on)     ......  84-108 

Theory  that  monetary  demand  for  the  precious  metals 
increases  their  value,  contradictory  to  the  quantity 

theory 74,  75 

Deposits  in  Bank,  how  made  and  used    .         .         .         .         .196 
Instruments  of  credit        .         .         .         .         .         .         .187 

What  they  are 187 

Depreciated  Currency,  assignats  and  mandats  of  France          .       183 
Causes  undepreciated   currency  to  be    withdrawn    from 

the   circulation 86,  87,  239,  250 

Colonial  and  Continental  paper  money    ....       183 

Greenbacks 184,  185 

Depreciation  of  Gold,  chapter  on   .         .         .         .         .         .       109 

What  is  meant  by  the  expression      .  109 


INDEX  299 

PAGES 

Depreciation  of  Silver,  not  caused  by  any  action  of  Germany, 

the  Latin  Union,  or  the  United  States  .         .         102-108 

Was  caused  by  the  great  production          ....       107 

Disadvantages,  of  bimetallism         ......       268 

Of  symmetallism      .......         276-280 

Of  the  tabular  standard  of  value       ....         289-293 

Discount,  what  it  is  .         .         .         .         .         .         .       197 

Dollar,  bimetallism  never  secured  an  honest    ....       164 
Honest,  of  the  bimetallist         ......       160 

Weight  of  gold 32 

of  silver         . 271 

Dried  Cod  used  as  money        .......  5 

Economic  Force,  by  which  the  bimetallists  claim  the  market 
ratio  of  silver  and  gold  will  be  held  at  the  legal  ratio, 

218,  224-226,  246,  261 
Edgeworth,  Prof.  F.  Y.,  on  symmetallism       .         .         .         .271 

England,  bimetallism  in          .......       227 

How  gold  was  adopted  as  the  standard  of  value  in    .         .         40 

Recoinage  in,  1690 176,  179,  181 

Restriction  of  specie  payments  in,  1797    ....         94 

Resumption  of  specie  payments  in,  1821  .         .         .         94 

of  gold  payments  in  1821    in,  did  not   cause   an 

appreciation  of  gold   .....  94,  97 

Suspension  of  the  use  of  gold  in,  during  the  restriction  did 

not  cause  depreciation  of  gold  .....  94 
Exchangeable  Value,  commodity  used  as  money  must  have,  167-185 
Exchange,  Par  of  (see  Broken  Par  of  Exchange). 

Fairs,  antiquity  of 205 

At  Lyons         .........       205 

Payments  at  .......       205 

Of  Middle  Ages       ........       205 

Fall  of  Prices,  M.  Cernuschi  on      ......       165 

Not  caused  by  the  action  of  Germany,  the  Latin  Union, 

or  the  United  States  demonetizing  silver  .          .          .        158 

Not  shown  that  there  has  been  a  general          .         .         '       164 

Synonymous  with  appreciation  of  gold    .         in,  117,  125,  etc. 

Fiat  Money,  what  is       .......         167-185 

France,  assignats  and  mandats  of,  depreciation  of  .         .         .       183 
Bimetallism  in          .......         234-248 

Driving  gold  out  of  circulation  in,  during  1820-1850,  did 

not  cause  gold  to  depreciate      ....  97,  99 

Driving  silver  out  of  circulation  in,  during  1851-1866,  did 

not  cause  silver  to  depreciate    ....          99,  100 

Member  of  the  Latin  Union  (see  Latin  Union)          .         .         84 
Premium  on  gold  in  1820  to  1847     .         .         .         .          97,  236 

on  silver  in  1851  to  1866        ....          99,  237 

on  gold  between  1867  and  1873      ....       240 


300  INDEX 

PAGES 

France,  Suspension  of  the  use  of  gold  and  silver  as  money,  while 
assignats  and  mandats  were  the  only  money  in  circula- 
tion in,  did  not  cause  these  metals  to  depreciate  .  0,3 

Functions  of  Money,  common  consideration  to  support  con 


tracts   .         .         .         .         . 
Measure  of  value     .... 
Satisfaction  and  discharge  of  liabilities 


21 


Genoa,  Bank  of 22 

Germany,  alleged  effect  of  demonetization  of  silver  by,  in 

1873 84,  102 

Demonetization  of  silver  by,  did  not  cause  fall  in  price  of 

silver 102-108 

nor  did  it  cause  gold  to  rise  in  value      .         .        105,  106 
Excess  of  exports  of  silver  from,  over  imports  .         .       106 

Excess  of  imports  of  gold  in,  over  exports         .         .         .       106 
Quantity  of  silver  sold  by,  since  1873        ....       102 

Gibbon's  Decline  and  Fall  of  the  Roman  Empire,  extract 

from     .........        203,  204 

Giffen,  Sir  Robert,  quoted  by  Mr.  F.  A.  Walker     .         .         .114 
Gold,  all  falls  of  prices  charged,  by  bimetallists,  to  apprecia- 
tion of          .         .         .         .         .         .         .         .in,  125 

And  silver  not  homogeneous     ......         91 

Appreciation  of,  what  is  meant  by    .          .         .         .         .109 

Chapter  on    .......         109-166 

Cannot  be  regarded  as  in  composite  or  joint  mass  with 

silver         ........          92,  259 

Commercial  world  insists  upon  using,  as  money        .         .       130 
Is  the  standard  of  the  measure  of  value    .         .       37  etc.,  48,  50 
Is  subject  to  variations  in  its  value  ....         48 

Premium  on,  in  France,  1820-1850,  1867-1873         .         97,  240 
Production  of  .......        143,  144 

Same  commodity  after  coinage  as  before  .         .       2,  10,  13 

Use  of,  as  money  does  not  increase  value  of  it          .          84,  108 
Gold  and  Silver,  cannot  be  regarded  as  in  one  joint  or  compos- 
ite mass        ........          92,  259 

Mint  creates  no  demand  for     .         .         .         .         .         .104 

fixes  no  prices  of  .         .         ...         .         .221 

Gold  Money,  is  basis  of  the  currency 32 

Is  primary  money    ........         29 

Is  self-sustaining      ........         29 

Is  a  universal  purchasing  power        .....         33 

Weight  of 32 

When  unlimited  legal  tender    ......         33 

Government,  cannot  fix  relative  values  of  commodities    .         .       222 
Cannot  control  market  ratio  of  silver  and  gold  by  fixing  a 

ratio  between  them  by  law         .         .         221,  227,  232,  247 
Maintenance  of,  facilitated  by  the  use  of  money        .         .         16 
Selects  commodity  to  be  used  as  money    .         .         .         .         15 

Greece,  member  of  the  Latin  Union        .....         84 

(See  Latin  Union.) 


INDEX  301 

PAGES 

Greenbacks,  depreciation  of    .......        184,  185 

Partial  legal-tender  .......         33 

Hallam,  on  debased  money   .         .         .         .         .         .  175 

Hamburg,  Bank  of          ........  22 

Hides  used  as  money       ........  5 

History,  Lessons  of,  monetary  demand  for  the  precious  metals 

does  not  increase  their  value          .....  93 

Quantity  of  money  has  no  effect  on  prices         ...  79 

History  of  Money,  Aristotle    .......  3 

Adam  Smith    .........  4 

Mr.  Francis  A.  Walker    .......  9 

Robert  Morris           ........  9 

Hoarding  of  precious  metals  is  consumption              .         .  88,  89 

Honest  Dollar,  bimetallisms  conception  of       ....  160 

Bimetallism  did  not  secure  an            .....  164 

Inconvertible  Paper  Money,  what  it  is          ....  30 

Index  Numbers  of  Prices         .......  144 

Pierson  on       .........  165 

Sauerbeck  on            ........  165 

Soetbeer  on     .........  165 

International  Bimetallism,  claimed  that  it  will  secure  fixity  of 

prices  ..........  124 

Claims  of  superiority  over  national            ....  248 

Considered 213 

International  bimetallist  refuses  to  commit  himself  on  the 

ratio,  but  leans  to  15^  to  I 214 

Iron  Money  of  Sparta     ......            6,  168,  169 

Italy,  member  of  the  Latin  Union  ......  84 

(See  Latin  Union.) 

Jevons,  W.  S.,  on  credit  and  prices       ....        147,  149 

On  standard  of  value        .         .         .         .         .         .         .         41 

On  tabular  standard  of  value  .  .  .  .  .281 

Joint,  no  joint  mass  of  supply  of  silver  and  gold  .  90  etc.,  254 

No  joint  use  or  demand  for  silver  and  gold  as  money  257-261 

Justice,  administration  of,  facilitated  by  the  use  of  money      .         20 

Latin  Union,  action  of,  limiting  coinage  of  silver,  did  not 

cause  fall  in  prices  of  silver         .         .         .         .         .158 

Limiting  coinage  of  silver  by,  did  not  cause  fall  in  price 

of  silver    .........        105 

nor  cause  gold  to  appreciate          .         .         .         .158 

Limits  coinage  of  silver  .......       102 

Laughlin,  Professor,  criticised  by  Mr.  F.  A.  Walker       .        114,  140 
Leather  used  as  money  ........  6 

Legal  Tender,  conception  of  a  law  of,  quite  modern       .         .         44 

Gold  is 32 

Making  money  a,  does  not  increase  its  value    ...         32 


302  INDEX 

PAGES 

Legal  Tender,  National  bank  notes  and  silver  certificates  are  not         33 
Silver  dollars  are     ........         33 

United  States  notes  (greenbacks)  partial  33 

Treasury  notes  of  1890  are    .....         33 

Lessons  of  History,  monetary  demand  for  the  precious  metals 

does  not  increase  their  value         .....         93 

Quantity  of  money  has  no  effect  on  prices        ...         79 
Show  that  debased  money,  or  depreciated  currency,  will 
not  pass  in  circulation  same  asundebased  money  will, 

175  etc. 
Show  that  Government  cannot  fix  relative  values  of,  or 

the  ratio  between,  gold  and  silver     .         221,  227,  232,  247 
Liabilities,  discharged  with  money          .         .         .         .         .         21 

Extent  and  quantity  of,  expressed  in  terms  of  money        .         22 
Limit  of  Tolerance         ........         32 

Liverpool  (Lord),  on  standard  of  value  .....  40,  41 

Lowe's  and  Scrope's  plans  for  tabular  standard  of  value  .       281,  282 
Lycurgus  withdrew  all  gold  and  silver  in  Sparta,  and  com- 
pelled the  use  of  spoiled  iron  as  money         .         .        168,  169 
Lyons,  Fairs  at,  during  the  Middle  Ages         ....       205 

Payments  at 205 

Mahomet,  description  by,  of  the  Day  of  Judgment        .         .       203 
Macaulay,  on  debased  money          .....         176-178 

Mandats,  French,  depreciation  of  .         .         .         .         .         .       183 

Market  Ratio  of  Gold  and  Silver,  cannot  be  fixed  or  controlled 

by  Government     .....          223-227,  232,  247 

Not  raised  by  their  use  as  money      ....          84-108 

Marshall,  Prof.  Alfred,  on  symmetallism         .         .         .        270,  271 
Means,  money  is  a  .         ........         15 

Measure,  of  Value,  money  is .         .         .         .         .         .         .  15,  22 

Middle  Ages,  Fairs  during      .......       205 

Mill,  J.  S.,  on  money  as  a  means   .         .         .         .         .         .16,18 

On  quantity  theory          .......  61,  67 

Qualifies  that  theory         .......  69,  70 

Mint,  bimetallists  insist  that  it  fixes  a  price  on  gold  and  silver       218 
Creates  no  demand  for  silver  and  gold     ....       104 

Fixes  no  price  on  gold  or  silver        .         .         .         .         .221 

Only  certifies  to  the  weight  and  fineness  of  the  piece  of 

metal  called  money  .         .         .         .         .         .         .     7,  n 

Monetary  demand  for  the  precious  metals  does  not  increase 

their  value  (chapter  on)         ......         84 

Money,  adopted  by  common  consent,  or  by  Government         .         15 
Demand  of  precious  metals  for,  does  not  increase  their 

value 84-108 

Functions  of    .........         15 

History  of  ........   3  etc. 

In  circulation  is  not  consumed          .....         89 

Is  a  commodity         ........  14,  15 

Is  a  common  consideration  to  support  contracts        .         .  15,  21 


INDEX  303 

PAGES 

Money  is  an  instrument  for  the  discharge  of  liabilities   .         .  15,  21 
Is  a  means       .........         16 

Is  a  measure  of  value        .         .         .         .         .         .         .  15,  21 

Is  what  ?          .         .         .         .         .         .         .         .          .1,2 

Of  account  or  bank  money,  what  it  is       .         .         .         .         22 

Of  United  States i 

Prices  not  regulated  by  quantity  of  ....   53-83 

Qualities  annexed  to         .......         29 

Remains  same  commodity  after  as  before  coinage  .       2,  10,  13 

What  it  is 15 

Why  the  commodity  used  as,  must  have  exchangeable  value, 

167,  185 

Morris,  Robert,  history  of  money  by       .....  9 

Multiple-Tender  (see  Tabular  Standard  of  Value). 


Nails  used  as  money     ........  5 

National  Bank  Notes,  are  secondary  money    .         .         .         .     i,  13 

Not  a  legal  tender  ........         33 

National  Bimetallism  (see  Bimetallism)   ....         213-269 


Paper  Money,  convertible  and  inconvertible  ....         30 

Depreciation  of   the    French  assignats,  mandats.  Conti- 
nental and  Colonial  paper  money       .         .         .         .183 

Is  secondary  money          .......         30 

Is  a  substitute  for,  or  representative  of,  metallic  money  .         29 
May  depreciate  without  being  issued  in  excess         .         .       184 
Under  quantity  theory,  increase  or  decrease  of,  has  same 

effect  on  prices  as  gold  money  ....  50  etc. 

What  it  is         .         .         .         .         .         .         .         .         .     i,  13 

Parachute,  conversion  of  bimetallism  into  a    .         .         .         .       245 

Par  of  Exchange,  alleged  that  demonetization  of  silver  has 

broken          .........       253 

Alleged  that  bimetallism  can  restore         ....       253 

Bimetallism  cannot  restore       ......       254 

Disadvantages  of  broken,  greatly  magnified     .          .          .       254 
Payments  at  Lyons  fairs          .......       205 

Pierson,  Mr.,  quoted  on  index  numbers  .....       165 

Plutarch  on  the  iron  money  of  Sparta     ....        168,  169 

Pound  of  Account,  or  Pound  Sterling,  what  it  is  .          .          23 

Precious  Metals,  monetary  demand  for,  does  not  increase  value 

of 84-108 

Use  of,  as  money  does  not  increase  value  of  .         .         87 

Premium  on  Gold,  in  France,  1820  to  1850,  1867  to  1873,  98,  236,  240 

In  United  States,  1861  to  1879 239 

Premium  on  Silver  in  France,  1851  to  1867     .         .         .          99-237 
Price,  Bonamy,  on  money  as  a  means      .         .         .         .         .  16,  19 
Price,  Market,  use  of  precious  metals  as  money  does  not  in- 
crease their 84-108 


304  INDEX 

PAGES 

Prices,  action  of  Germany,  the  Latin  Union,  and  the  United 

States  did  not  cause  fall  of    ......       158 

Bimetallists  charge  all  falls  of,  to  the  appreciation  of  gold,  1 10  etc. 
Government  cannot  fix  relative  prices  of  gold  and  silver, 

221,  227,  247 
Index  numbers  of    ........       144 

Mint  fixes  no,  for  gold  or  silver        .         .         .         .         .221 

Not  influenced  by  the  quantity  of  money  .         .         .  53-83 

Not  shown  that  there  has  been  a  general  fall  of         .         .       164 
Of  silver  ........        107,  108 

Rise  and  fall  of,  1850  to  1873  ......       144 

What  causes  fall  and  rise  of,    .         .         .         .         .   24,  27,  109 

What  is  price  ?          ........         33 

Primary  Money,  gold  is 29 

Production,  of  gold         .......        143,  144 

Of  silver  ..........       107 

Promissory  Notes,  defined       .         .         .         .         .         .         .194 

Instruments  of  credit        .......       187 

Use  of 195,196 

Purchasing  Power,  all  commodities  have  33 

Gold  is  a  universal  ........         33 

Paper  money  has  local     .......         33 

Silver  money  has  local      .......         33 

Use  of  precious  metals  as  money  does  not  increase  their,  84-108 

Qualities  annexed  to  money  ......  29-35 

Quantity  Theory,  chapter  on .         .         .         .         .         .         .         53 

Contradiction  of  the  theory  that  monetary  Demand  for  the 

precious  metals  increases  their  value          .         .         .74,  75 
Is  the  accepted  theory      .         .         .         .         .         .         .         53 

Is  contrary  to  experience          ......         79 

Its  alleged  operation         ......     61,67,70 

J.  S.  Mill  on 61,  67,  70 

No  such  theory  in  actual  use    .         .  ...  72,  75 

Ricardo  on       .........         53 

in  contradiction  of  .         .         .         .         .  81,  83 

Under  it  the  quantity  of  money  is  the  standard  of  value  .         80 
What  it  is 61,67,70 

Ratio  between  Gold  and  Silver, 

Bimetallists  demand  that  it  be  fixed  by  law      .         .         .213 
admit  that  bimetallism  cannot  restrain  slight,  or  too 

great  divergences  of  .         .         .         .         .         .       229 

Cannot  be  fixed  or  controlled  by  Government  .         .        223-227 
Fixing  by  law  same  as  fixing  prices          .         .         .         223-227 
International  bimetallist  declines  to  commit  himself  on , 

but  leans  to  15^  to  I         .         .         .         .         .        214,  220 

National  bimetallist  demands  that  it  be  fixed  at  16  to  i    .       213 
Necessity  of  its  being  fixed  by  law  indispensable  to  bi- 
metallism . 216-221 

Variations  in 235,  241,  246 


INDEX  305 


Recoinage  in  England,  1690 176,  179,  181 

Restriction  of  Specie  Payments  in  England  ....  94 
Did  not  cause  gold  to  depreciate  .  .  .  .  .94 

Resumption  of  Specie  Payments  in  England,  1821  .  .  94 

Did  not  cause  gold  to  appreciate  .....  94 

Resumption  of  Specie  Payments  in  the  United  States  .  .  101 
Did  not  cause  gold  to  appreciate  .....  101 

Ricardo,  David,  in  contradiction  of  the  quantity  theory  .  81-83 

On  coin  being  same  commodity  as  bullion         •         •         •         73 
On  debased  coin      ......         169-174,  181 

On  the  quantity  theory  ......   53-61 

On  the  standard  of  value 41,81,83 

Rise  in  Prices,  1850  to  1873 J44 

Romans,  copper  standard  of  value  of  .....  37 
Used  copper  as  money  ........  6 

Roscher,  Prof. ,  scheme  of  tabular  standard  of  value         .         .       282 

Salt  used  as  money        ........  5 

Sauerbeck,  Mr.,  tables  of,  referred  to     .         .         .          .         .113 

Quoted  on  index  numbers         ......       165 

Scrope's  and  Lowe's  plans  for  tabular  standard  of  value  .        281,  282 
Set-Off,  under  credit  system  credits  are,  against  debits    .         .       186 
Settlements  at  the  fairs  held  at  Lyons     .....       205 

At  the  clearing-house       ......        208,  212 

By  books  of  account         .......       191 

Through  banks        .......         196—202 

Shaw,  W.  A.,  on  debased  money    .....         178-180 

On  legal-tender  law          .......         44 

Silver,  and  gold  not  homogeneous  .         .         .         .         .         .         91 

Cannot  be  regarded  as  in  joint  or  composite  mass  with 

gold  .........         92 

Cause  of  the  fall  in  value  of,  since  1873  ....       106 

Demonetization  of,  by  Germany,  did   not   cause  fall  in 

price  of 102-108 

Excess  of  exports  of,  from  Germany,  over  imports   .         .       106 
Exports  of,  from  Germany,  over  imports  into  .         .         .       106 
Premium  on,  in  ¥  ranee,  1851  to  1866       ....         99 

Prices  of  ........        107,  108 

Production  of  ........       107 

Quantity  of,  sold  by  Germany  since  1873          .         .         .       102 
Use  of,  as  money,  does  not  increase  value  of    .         .  84-108 

Variations  in  its  ratio  with  gold        .         .         .        235,  241,  246 
Silver  and  Gold,  cannot  be  regarded  as  in  one  joint  or  compos- 
ite mass        ........          92,  259 

Mint  creates  no  demand  for     .         .         .         .         .         .114 

fixes  no  prices  for  .  .         .         .         .212 

Not  homogeneous    ........         91 

Silver  Certificates,  are  not  a  legal  tender         .         .         .         •         33 
Are  secondary  money       .......         32 

Not  a  universal  purchasing  power    .....         33 


306  INDEX 

PAGES 

Silver  Certificates,  What  they  are 2,  14 

Silver  Money,  dollars  a  full  legal-tender          ....         33 

Dollar,  weight  of     ........       171 

Fractional,  limited  legal-tender       .....         33 

Not  a  universal  purchasing  power    .....         33 

What  it  is         .         .         .         .         .         .         .  2,  14,  16 

Smith,  Adam,  history  of  money  by          .....  4 

On  money  as  a  means      .         .         .         .         .         .         .  16,  18 

On  standard  of  value        .         .         .         .         .         .         .         37 

Soden  (Count),  scheme  for  tabular  standard  of  value       .         .       282 

Soetbeer,  Dr.  Ad.,  on  index  numbers  and  prices     .         .        144,  164 
On  standard  of  value       .......         42 

Sparta,  iron  money  of     .         .         .         .         .         .         .  6,  1 68,  169 

Specie  Payments,  restriction  of,  in  England    ....         94 

Resumption  of,  in  England      ......         94 

Resumption  of,  in  United  States      .....         98 

Suspension  of,  in  United  States        .....         98 

Stability  in  the  Value  of  Money,  alleged  that  bimetallism  will 

secure  ........         253-262 

Standard  of  Deferred  Payments,  what  is  meant  by  36 

Standard    of    the    Measure   of   Value,  adopted   by   common 

consent         .         .         .         .         .         .         .         .         .  36,  46 

Adam  Smith  on        ........         37 

Commonly  called  Standard  of  Value         ....         36 

Dr.  Ad.  Soetbeer  on        .......         42 

Gold  is,  at  present,  the 37  etc.,  48,  50 

How  it  was  adopted         .......         37 

Lord  Liverpool  on  .......  40,  41 

Ricardo  on       ........      41,  81-83 

Under  quantity  theory,  quantity  of  money  is  the      .         .         80 
What  is  not  meant  by      .......         34 

What  is  meant  by    ........         36 

Standard  of  Value  (see  Standard  of  the  Measure  of  Value). 

Suspension,  of  specie  payments  in  United  States     .         .         .       101 
Of  the  use  of  gold  and  silver  as  money  in  France  during 
1789-1796  did  not  cause  those  metals  to  depreciate 
in  value    ;........         93 

Of  the  use  of  gold  in  England  as  money  during  the  restric- 
tion, 1797-1821,  did  not  cause  gold  to  depreciate  in 
value        .........         94 

Of  the  use  of  gold  as  money  in  France  during  1820-1850 

did  not  cause  gold  to  depreciate  in  value  .         .  97—99 

Of  the  use  of  silver  in  France  as  money  during  1851-1866 

did  not  cause  silver  to  depreciate       ....         99 

Of  the  use  of  gold  as  money  in  the  United  States  during 

1861-1879  did  not  cause  gold  to  depreciate  in  value  .       101 

Switzerland,  member  of  the  Latin  Union        ....         84 
(See  Latin  Union.) 

Symmetallism,  alleged  advantages  of  .         .         .        272-276 

Alleged  superiority  of,  over  bimetallism  ....       272 


INDEX  307 


Symmetallism,  Francis  A.  Walker  on 270 

Probable  disadvantages  of        ...         .  276-280 

Prof.  Alfred  Marshall  on 270 

Prof.  F.  Y.  Edgeworth  on 271 

What  it  is 276-280 

Tabular  Standard  of  Value,  advantages  claimed  for       .        281-285 
Count  Soden  on        ........       282 

Difficulties  in  its  practical  operations        .         .         .         288-293 
Difficulties  in  the  way  of  introducing       .         .         .        286-288 
Disadvantages  of     .......         289-293 

Francis  A.  Walker  on      .......       282 

Lowe's  and  Scrope's  plans  of  .         .         .         .         .         281-285 

Prof.  Jevons  on        ........       281 

Prof.  Roscher  on     ........       282 

Taussig,  F.  W.,  translation  by,  of  Dr.  Soetbeer's  Materials, 

etc.,  mentioned    ........         42 

Tobacco,  used  as  money          .         .         .         .         .         .  5,  9 

Use  of,  as  money,  did  not  cause  an  increase  of  its  value  .       101 

Trade  facilitated  by  the  use  of  money     .....         16 

United  States,  bimetallism  in 228 

Demonetization  of  silver  by,  in  1873,  did  not  cause  fall  in 

price  of  silver   ........  105 

How  gold  was  adopted  as  the  standard  of  the  measure  of 

value  in    .........  43 

Money  of         .........  I 

Resumption  of  specie  payments  in   .         .         .         .         .  101 

did  not  cause  an  appreciation  of  gold     .         .         .  101 

Suspension  of  specie  payments  in     .         .         .         .         .  101 

did  not  cause  a  depreciation  of  gold       .         .         .  101 

United  States  Notes,  depreciation  of       ....        184,  185 

Partial  legal-tender           .......  33 

United  States  Treasury  Notes  of  1890  are  a  legal  tender          .  33 
Use  of  the  Precious  Metals  as  Money  does  not  cause  an  in- 
crease of  their  value     ......           84-108 

Value,  commodity  used  as  money  must  have  exchangeable,   167-185 
Measure  of,  money  is       .......         22 

Standard  of  the  measure  of  (chapter  on)  ....         34 

Tabular  Standard  of 281-285 

Use  of  the  precious  metals  as  money  does  not  cause  in- 
crease of  .......          84-106 

Variations  in  relative,  between  silver  and  gold,        235,  241,  246 

Venice,  Bank  of     .........         22 

Walker,  Francis  A.,  criticises  Mr.  D.  A.  Wells,  Prof.  Laugh- 

lin,  and  Mr.  Atkinson .         .         .         .         .         .         .114 

History  of  money  by        .......  9 


308  INDEX 

PAGE! 

Walker,  Francis  A.,  on  bimetallism         ....        237,  25^ 

On  depreciation  of  gold  .         .         .         .         .         .        nr,  ii' 

On  symmetallism     ........  27C 

On  tabular  standard  of  value   ......  28: 

Weight,  of  the  different  gold  coins           .....  3: 

Of  the  silver  dollar 17] 

Wells,  David  A.,  criticised  by  Mr.  F.  A.  Walker  .         .          14,  I4( 
Error  (alleged)  of,  in  treating  decline  in  prices  as  an  eco- 
nomic advance           .         .         .         .         .         .         .  ii£ 

White,  Horace,  description  of  the  New  York  Clearing-IIouse, 

and  its  method  of  conducting  business  ^  ,     .         .         .  2oi 


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